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Deloitte Survey: U.S. Natural Gas Independence Ahead

Three-quarters of oil and natural gas professionals, with on average 20 years of experience, believe the United States is headed toward natural gas independence within a decade, but it still will rely on foreign oil, according to a new Deloitte LLP survey.

The results of the survey, which was conducted in late October, were issued last week at the annual Deloitte Oil & Gas Conference in Houston. Deloitte canvassed 250 energy professionals who were on average 48 years old. All had college degrees and earned more than $100,000 a year.

"It's not surprising that oil and gas decision makers are enthusiastic about the role of natural gas in our national energy future, given burgeoning supplies, America's comparatively low cost of extraction, and its relative cleanliness," said Deloitte Vice Chairman John England, who leads the firm's oil and gas practice. "What is surprising is that natural gas is a fuel source that we were aggressively preparing to import at high world prices just a few years ago."

Natural gas prices in 2013 are predicted by 40% of respondents to be less than $3.00/MMBtu. Most (86%) predicted Henry Hub prices below $4.00/MMBtu in the coming year. Specifically, 4% see prices below $2.00; 36% see prices between $2 and $2.99; 46% think prices will be between $3.00 and $3.99; and 14% expect prices to be higher than $4.00.

Crude oil prices next year are expected to remain "relatively strong," said respondents. More than half (57%) think the average cost of a barrel of West Texas Intermediate crude oil will be between $80 and $99/bbl. In other responses, 2% said prices would be below $80; 17% said $80-89/; 40% said $90-99; 28% said $100-109; 7% said $110-119; and 5% see prices above $120.

Respondents expect to see positive gains for oil prices, but they are "far less optimistic" about the country's ability to meet domestic oil demand, with more than half (54%) believing that the country would never be completely self-sufficient and about one-quarter (26%) said oil independence was achievable within 10 years. North America's ability overall to achieve oil independence, however, drew a different response.

"Given North America's remarkable success with unconventional oil -- both tight oil in places like North Dakota and oilsands in Canada -- something closely resembling self-sufficiency is arguably within reach," said Peter Robertson, former vice chairman of Chevron Corp. and now a Deloitte independent senior adviser. "When you combine unconventional oil supplies with the recently established increase in shale gas reserves, you could have the makings of a true energy renaissance."

U.S. shale plays are on the right track, according to most of those surveyed.

Natural gas regulations related to hydraulic fracturing (fracking) are "just right" or "evolving, but on the right track," said almost half (49%) of respondents. Only 39% said they believe there is "too much regulation." And 5% said they think there is "too little regulation." Seven percent said they were "unsure." Most professionals -- 63% -- support regulations requiring producers to disclose the contents of their fracking fluids; less than one-quarter (24%) were opposed. Only 13% said they were "unsure."

Regarding shale gas resource estimates, barely half of those responding (51%) believe current industry estimates for the amount of recoverable resources were "pretty much on target," with 23% indicating the figures were "somewhat overestimated." Another 23% believe they are "somewhat underestimated." Only a few thought shale resources were "very overestimated" (1%) or "very underestimated" (2%).

"It seems clear that oil and gas professionals believe America has a veritable bounty of shale gas resources," said Deloitte Consulting principal Roger Ihne. "In simple terms, over 95% think the current industry estimates are accurate or not far off."

Industry professionals are forecasting continued low gas prices -- and new market opportunities -- for liquefied natural gas (LNG). Most think that the abundance of shale gas would lead to LNG exports. Nearly three-quarters (72%) believe export terminals eventually will be approved by government officials, and 36% think approvals will occur before 2014. Thirty-six percent also expect terminal approvals after 2014.

Even if LNG is exported, most of the decision makers don't expect a "meaningful" increase in domestic gas prices. A strong majority -- 93% -- expect no increase or only a slight change in price. Only 7% are forecasting significant price hikes.

"Given the reserve estimates and current supplies, it only makes sense that natural gas producers are keen to develop new uses for their gas," said Ihne. "One possible option that stood out among survey respondents was use as a transportation fuel,” said Ihne.

When asked to identify the "best alternative" transportation fuel to gasoline and diesel, those surveyed "clearly preferred natural gas," with 67% seeing products like compressed natural gas (CNG) as the most promising option to refined products. CNG was well ahead of other top choices like electricity (11%) and biofuels (8%).

Regarding other pressing issues, most are forecasting higher capital spending in the next year, with more than half (59%) predicting "much more" or "somewhat more" spending. About one-third (35%) see flat spending, and only 6% expect to spend less.

More than half (53%) of the oil and gas decision makers see "much more" or "a little more" mergers and acquisitions in 2013, while 42% believe it will "remain about the same." Only 5% expect merger activity to be lower.

About 65% see an increase in exploration and production in the Gulf of Mexico; only 26% expect activity levels to be flat from this year. Only 9% expect activity to be lower.

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