U.S. natural gas production keeps climbing, and for that to continue burnertip action needs to step up, and it likely will, a Bentek Energy LLC executive told attendees at GasMart 2011 in Chicago last week.

Producers have shifted their focus to oil and natural gas liquids (NGL) plays given high prices for crude and NGLs. “The market is working. Producers are focusing on higher-value Btu plays,” said Bentek Vice President Jim Simpson.

Nearer term, Bentek projects a 2.3 Bcf/d increase in supply this year over last and a 2.2 Bcf/d increase in demand, making the market long 0.1 Bcf/d. He said forward Henry Hub prices have about 80 cents to $1.00 to fall.

For 2011, Bentek is pricing gas at 81 cents below Nymex. For 2012 Bentek’s price projection is $1.13 shy of Nymex. Bentek’s differential to the screen is $1.00, 91 cents and $1.32 in 2013, 2014 and 2015, respectively, Simpson said.

On the demand side this year in the power generation sector, Simpson said, Bentek expects about 1.8 Bcf/d worth of fuel switching from coal to natural gas. This would be a step up from last year, which saw 1.1 Bcf/d of switching, but it would be less than fuel switching in 2009, which was 2.76 Bcf/d.

Longer term, Bentek sees about 8.7 Bcf/d worth of potential structural shifts in the gas market over the next eight years or so.

On the power side this is composed of about 4.1 Bcf/d worth of fuel switching from coal to gas. Particularly vulnerable are coal plants of 200 MW or less that do not have up-to-date emissions controls. Add to the 4.1 Bcf/d about 0.37 Bcf/d worth of fuel switching to gas from fuel oil in the power sector. In the residential/commercial sector Bentek is looking for about 3 Bcf/d of demand growth. In the industrial segment Bentek expects 1.34 Bcf/d of demand growth.

“This is what could happen in say the next eight years,” Simpson said.

By 2015 Bentek projects that Lower 48 dry gas production could be 5.4 Bcf/d higher, an increase of 9.3% from today.

To eat up the projected 5.4 Bcf/d of supply growth in the near term, Simpson said take two-thirds of the expected coal retirements; “maybe by the end of 2013 we get there. We throw in all of the oil conversion on the power side…We throw about 40% of the fuel oil conversions on the industrial and residential/commercial side…That gets us our 5.4 Bcf/d.”

While the robust Lower 48 gas production growth has been driven by shale plays, Simpson said a similar revolution is afoot on the oil side as producers target oil shales and liquids-rich plays in search of higher returns.

“It’s coming and it’s coming almost as quickly as what we call the shale revolution…” Simpson said.

The Cushing, OK-Brent oil price spread has blown out, thanks to the turn to oil and natural gas liquids-rich plays by North American natural gas producers. By the end of 2016 the U.S. could be back to 1985 oil production levels.

“You’ll be hearing more and more over the next 12 months about North American crude oil…Natural gas producers are really turning back into crude oil producers,” Simpson said.

Simpson cited the Permian Basin as an example of how things have shifted. While Bentek used to believe that Permian natural gas production was in decline, that’s not the case any longer. Producers targeting oil in the Permian are producing enough associated natural gas — essentially for free, thanks to liquids economics — to keep Permian gas production levels flat, Simpson said.

Simpson said what’s going on with North American oil feels “a lot like the shale revolution did in early 2008. I remember several times getting kicked out of people’s offices for saying, ‘Be careful; gas is going to grow rather quickly…'”

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