Look for some some natural gas to be shut in for want of a place to go before the end of this storage injection season, but longer term all the signs for gas are bullish, according to Devon Energy President John Richels.
Richels was the luncheon speaker Wednesday at the Summer NAPE Expo in Houston, a forum for producers and deal-makers to swap prospect information. Producer Richels was, not surprisingly, bullish on gas fundamentals. He cited four factors: production declines, lack of growth in Canadian production, restrictions on access to public lands, and a focus on near-term results by Wall Street.
Well declines that used to average about 15% now average 31% and can be as high as about 50%, Richels said. The industry is drilling more wells, and production this year has increased a little, but overall the trend is flat.
Those who point to Canada as a source of continuously growing production are mistaken, Richels said. In the years following Canadian deregulation in 1986, gas production climbed substantially, 134% over 15 years. However, the acceleration in the rate of production was wrongly interpreted by many as growth in the capacity to produce, said Richels, who came to Devon years ago by way of a Canadian acquisition.
Additionally, hundreds of Tcf of domestic gas reserves are off limits to the industry due to drilling moratoriums, for instance in the eastern Gulf of Mexico, he said.
Finally, Wall Street has a substantial influence on what producers can and cannot do. Richels pointed out that the number of managed funds has doubled over the last decade. Managers of mutual funds and the like want quick returns and have little patience with long-term planning by the oil and gas or any other industry. “They’ve tended to put a short-term focus on an industry that needs a long-term focus,” Richels said.
And in the longer term, natural gas from Alaska and liquefied natural gas (LNG) from overseas will help out, but not soon. And in the case of LNG, Richels pointed out that the United States will be competing with China, Japan, India and western Europe for gas supplies.
The next big issue facing the industry is “a looming labor shortage” due to the belief by many that the energy industry creates (and later destroys) jobs but doesn’t offer careers, he said.
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