Shale play activity has come on like gangbusters in recent years, greatly augmenting the overall supply picture. Some producers appear dubious about how sustainable even the highly competitive economics of shale drilling are during a period in which gas prices universally have slipped below $4 into the pipe, but many keep shifting rigs into their shale acreage anyway.

So what could disrupt such a strong growth outlook? Cameron Horwitz, associate in oil and gas equity research at Houston-based Canaccord Genuity, believes it likely could come from demand for drilling/completion equipment and infrastructure gradually overwhelming the oilfield services companies.

It’s not a mirage. Reporting a cut in Encana Corp. production guidance for 2010 (see Daily GPI, Oct. 21a), CEO Randy Eresman said Wednesday that capacity constraints for completion services, particularly in its Haynesville play in North Louisiana and East Texas, have hindered the addition of some production volumes that Encana had previously forecast for the last half of 2010. The “high demand for hydraulic fracturing equipment and services threatens to accelerate the modest inflation we have seen this year,” Eresman explained. He went on to say that the company’s new strategies include building and hiring “fit-for-purpose” completion equipment and rigs that should improve drilling and cost efficiency.

And Comstock Resources recently cited the limited availability of high-pressure pumping services as a reason for “significant delays” in completing its Haynesville or Bossier shale wells in North Louisiana (see Shale Daily, Oct. 21). As a result, and also due to relatively low prices of dry natural gas, Comstock said it is likely to focus more strongly on its liquids-rich Eagle Ford Shale drilling program in South Texas next year.

In a revised global exploration and production (E&P) outlook indicating little chance of higher gas prices in the next few years (see Daily GPI, Oct. 21b), Moody’s Investors Service said rising costs of oilfield services costs are adding to pressure on gas price margins. “For example, pressure pumping services, which are critical to the completion of shale gas wells, are running at nearly 100% capacity in many regions. This has translated into costs for that service rising by more than 30% over the first three quarters of 2010,” said Moody’s Senior Credit Officer Kenneth Austin.

How serious is the slowdown impact of shortfalls in the supply of completion and fracturing services? It’s not a major problem — yet, Horwitz told NGI’s Shale Daily. The main effect he’s seeing so far is a slowdown in the rate of shale production growth; it’s still rising, he said, but not as rapidly as before.

Horwitz sees a possibility of some shale plays actually going negative on output increases next year as demand pressure on services keeps rising. The Haynesville is a likely candidate for that, he said.

Horwitz perceives Eagle Ford and Haynesville as generating the most producer complaints about the lack of services availability. The Marcellus also has some issues in that area, he added.

Don’t look for any mad rush by services companies, even those with the most expertise in hydraulic fracturing, to ramp up their capabilities as fast as possible to meet the burgeoning demand, Horwitz said. They will lean more toward caution, especially because of the current supply glut.

The big services firms have gotten burned at times in the past by having to leave some of their equipment idle, he added, “so they’re dragging their feet a bit” on major expansions, at least partly to maintain their current high profit margins. “It’s a balancing act between bringing in more equipment and horsepower” to the production areas, but not wanting to exceed demand.

However, Horwitz reported hearing from E&Ps that they’re seeing quite a few smaller company startups in the services sector; most of the existing companies are long-established and very big, often due to mergers. Petrohawk, one of the larger shale gas producers, is contracting with some of these new smaller providers, he noted. “If the larger ones don’t do it, then somebody else will,” Horwitz added, referring to the new companies seeing a profitable opportunity in filling a perceived void.

The shale production “frenzy” has already peaked in dry gas plays, the analyst said, but he doesn’t expect a peak in “wet” plays (richer in crude oil and natural gas liquids) until 2012 at the earliest.

It’s hard to say whether there are still any substantive North American shale formations left to be discovered, Horwitz said. There may be “incremental” finds but they are unlikely to be as prolific as the ones already being worked. He looks for most expansion of shale drilling to occur in new “horizons;” that is, different sections and/or depths of existing plays. For instance, he said, there is growing interest in the Buda limestone formation that lies not far below the currently most popular Eagle Ford well depths.

NGI‘s Shale Price Indices (SPI) chart showed prices falling during the Oct. 14-21 week anywhere from about a nickel to nearly a quarter at several key plays. If it hadn’t been for gains of about a dime or slightly higher on Wednesday, the weekly declines would have been significantly larger.

The three Rockies plays (Green River Basin, Piceance Basin and Uinta Basin) took some of the smallest hits of 7 cents, 6 cents and 9 cents, respectively. They were joined in the Midcontinent with relatively minor drops by Cana-Woodford (5 cents) and Granite Wash (7 cents).

On the other hand, Marcellus in northeast Pennsylvania fell the furthest — down 23 cents to $3.62.

The two Marcellus price points, on either side of $3.60 in Wednesday’s trading, remained well ahead of other shale numbers. But basis spreads were getting tighter at Shale Daily‘s other SPI locations, ranging barely more than a dime from $3.30 (Uinta Basin) to $3.41 (Eagle Ford).