Signs in the natural gas patch that drilling will be slowed or halted in some basins, and reports of decreased pipeline volumes flowing east are being watched out West, but California energy officials for are not concerned about shortages and price spikes on the horizon. Analysts at the California Energy Commission (CEC) said they are not ready to alter any of their forecasts for 2012.
Chesapeake Energy Corp.’s announcement this month that it would slash its domestic dry gas spending by 70% this year and cut in half operated gas drilling activity sent its natural gas prices up and its own share price soaring on Monday (see Daily GPI, Jan. 24). Chesapeake “immediately” plans to curtail 0.5 Bcf/d, or 8%, of its current operated gross gas output, which is 6.3 Bcf/d — 9% of the nation’s estimated gas production. ConocoPhillips on Wednesday also announced plans to shut in 100 MMcf/d of North American gas and other operators are reducing their gas drilling as well (see Daily GPI, Jan. 25a, Jan. 25b).
“Chesapeake, while a major player in developing shale resources, is a price-taker,” said CEC’s Ivin Rhyne, the head of the electric/gas forecasting team. “While the lower-than-average prices are producing some investment adjustments, the Lower 48 states have an abundance of both developed and undeveloped natural gas resources.”
Rhyne maintains that Chesapeake accounts for 9% of the total U.S. natural gas production so its cutback does not make a big dent in the national supply picture. What will make an impact is if a lot of the majors — No. 1 producer ExxonMobil Corp., Anadarko Petroleum Corp., Devon Energy Corp. and Encana Corp. — follow Chesapeake’s lead, he said. “Then there could be some significant impacts.”
Another development that has had the CEC’s attention since last fall is the drop off in Rockies gas supplies headed east since the build up in shale gas production in the Marcellus Shale.
Rhyne predicted that “natural gas molecules flowing east from the Rockies will experience major difficulties competing with the closer-to-demand-center gas production from the Marcellus and other shales.” In the meantime, the CEC has tracked “consistent flows” of Rockies supplies up to 1 Bcf/d from El Paso Corp.’s Ruby Pipeline. “This, in essence, has reduced the price of gas along the California northern border.”
With initial shale in Ohio from the Utica Shale coming in at more than 200 MMcf/d, Rhyne said in the years ahead the Rockies Express Pipeline (REX) will “have to adjust” its flow patterns if it is to be “a viable pipeline.” During an analyst presentation Wednesday, executives at REX owner Kinder Morgan Inc. said they were considering options for REX such as increased backhauls (see Daily GPI, Jan. 26).
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