Abundant gas supplies make for a “bleak picture” for gas producers in the near term, Bentek Energy LLC CEO Porter Bennett said last week. While prices will stay in a $3.50-5.50 range for a while, this will ultimately spur demand, particularly among power generators, he posited, and that will be the cure for low prices. But until then — two or three years from now — things will continue to be interesting.
Technology advances in drilling and well stimulation have fundamentally shifted the gas market and the way gas flows across the United States. Supplies from the booming Marcellus Shale play will continue to grow, as well as those from the Southeast. To Rockies producers who once longed for a connection to eastern markets, California will be looking a lot better, Bennett told attendees at GasMart 2010 in Chicago.
Not all that long ago nearly all of the industry’s production growth was expected to come from the Rocky Mountain region; the East was thought to have been played out, Bennett noted. “Boy, how things change,” he said during his presentation, titled “Rearranging the North American Infrastructure for an Expanding Market.”
“I’m a Rockies guy, and a couple years ago I talked about how the West was going to crush the East. It shows you how transitory things can be in this industry,” Bennett said.
Rockies Express Pipeline suppressed West-East basis, not to mention the effect of shale gas plays, particularly the Marcellus, nestled near eastern demand centers.
As evidence of the Marcellus’ current and future impact, Bennett noted that production out of the play grew by 400 MMcf/d last year, doubling the output; while the Rockies saw production growth of 200 MMcf/d, a far more modest increase when one considers the Rockies puts out 8.5 Bcf/d.
“That is what I mean by the Marcellus growing relative to everybody else; it’s started to push people back,” Bennett said. This coupled with growing availability of liquefied natural gas on the East Coast means the days of $25 gas in the Northeast are probably gone, he said.
“The spreads have really crashed,” Bennett said. “That great divide has pretty much been obliterated. We have essentially one big supply area with a couple of constraints.”
With the exception of the Northeast and in the Southeast where power demand for gas spikes with the temperature, constraints have been eliminated. “You can move gas pretty much anywhere you want,” Bennett said. “Basis is pretty much flat down in the Gulf for all practical purposes.”
A more recent phenomenon is gas producers’ migration to oil plays and those offering significant natural gas liquids (NGL) output. “If this kind of activity continues I think you’re going to see a vastly different marketplace than what you see today,” Bennett said, noting that he believes the notion of “peak oil” will be one casualty of the shift to oilier plays.
Ultimately, the gas patch technology of horizontal drilling, multiple-stage hydraulic fractures as well as multi-well pad drilling will transform the oil side of the energy patch, too, Bennett suggested. Development of midstream infrastructure to serve the oilier plays will follow, he said.
“Exploration activities are going to continue to shift to the lowest-cost, most productive regions,” Bennett said. “Midstream assets are going to have to follow suit…That’s a significant barrier to rapid development, but it also is an opportunity.”
The impact on gas prices of the shift to oil/liquids plays is not clear, Bennett said.
“At one point we thought it was going to be that as the drilling rigs moved out of the gas areas and went into the oil there would be less production in the gas areas and eventually that would help drive up the price of gas,” he said. “Probably that works but if there’s enough associated gas produced in these other areas, it might dampen that effect very dramatically. What the impact of this is on prices is really not clear in my mind.”
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