All the indicators are that the natural gas industry is headed into a huge oversupply, fueled by flat demand and continued gigantic growth in shale gas. Speakers touched on a developing supply bubble in different ways during the opening day Tuesday of the "LDC Forum: Rockies and the West" conference in Los Angeles, noting that it will require some creative marketing to pump up demand.

For the industry players this is a good time to do some serious planning because prices and demand will not stay down forever, or even very long, according to Jim Duncan, director for market analysis at ConocoPhillips Gas and Power in Houston. "We're not seeing as much liquefied natural gas (LNG) as we thought we would be at this time, but the reality is we'll probably eventually see more LNG than we thought we would because there is a lot more being produced that has no home."

It all comes down to what Duncan said is a "flattening basis market," and that is highly characteristic of an oversupplied market. "The good news for end-users is the prices are staying low, and the not-so-good news for producers is that prices are staying low."

Duncan called gas supplies way above anything the industry has seen in the past decade. "And the technology the United States is using on shale will soon spread around the world that is going to make gas very cheap relative to other energy sources for some time to come," he said.

The oversupply situation right now could have been much worse, Duncan said, but unusually prolonged heat spells over much of the United States in the summer helped soak up some of the extra gas for power generation.

While shale gas has been the "game changer" for most everyone, Duncan listed a number of potential issues to watch closely, including shifts in volatility of wholesale prices, the forward curves that are now going down could reverse, and new markets in transportation fuels could emerge.

"Going forward, looking out, I see natural gas being more prevalent as an energy source in larger numbers of countries around the world than it is now or ever has been."

Duncan called natural gas "quite literally the most oversupplied energy source we've ever seen, and that will be exploited as time goes on. Another ramification is that the North American natural gas grid has been overbuilt."

Ultimately, Duncan sees all of this contributing to a surge in gas demand for compressed natural gas and LNG in transportation, and even in the gas-to-liquids market.

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