The U.S. natural gas industry collectively is holding its breath to see whether the grim Gulf of Mexico (GOM) oil spill disaster impacts onshore drilling one way or the other, but in the near term, a positive influence is unlikely, an energy executive said last week.

Darryl W. Rogers, a senior consultant with Purvin & Gertz Inc., said the “oil and gas” industry is “looked at as one industry, and no one is particularly enthused about oil drilling at this point.” Rogers shared his company’s outlook for onshore shale gas resources on Wednesday at the Ninth Annual Insight Information’s Gas Shales Summit in Houston.

“In a general sense, there are huge implications” from the spill, Rogers said. “But it will be difficult” to see gains by gas. Since the oil and gas industry are tied together, in terms of “drilling” for resources, the “detriment” to the drilling industry reputation has come across the board.

The gas industry eventually could see gains as a “cleaner” source of energy than oil or coal, which it already is, but with the abundance of onshore gas supplies, the Purvin & Gertz firm is bearish about natural gas through 2011, said the executive.

In a note to clients Wednesday, Credit Suisse analyst Jon Wolff mused that the spill could boost shale gas as the United States attempts to reduce its dependence on foreign oil and ease the higher risks from drilling in deepwater.

“Domestic shale gas should emerge as a key solution to bolster energy security,” Wolff wrote. “Natural gas also offers a cleaner, lower-risk solution.”

The possible upside for natural gas may not be as much as some may hope, said Rogers.

Asked whether the offshore drilling moratorium imposed by the federal government may help to lift gas prices “in general,” Rogers said, “Not in the near term. [From] what I heard from MMS [Minerals Management Service] and what’s been reported, this is a short-term aberration. There is such an overabundance of natural gas, I’m surprised that gas prices are what they are.

“If anything, [the oil spill] keeps us at the $4.50 level. But Purvin & Gertz are still very bearish on the natural gas market in 2010.”

The U.S. gross domestic product (GDP)is beginning to recover, according to Purvin & Gertz statistics. This year, U.S. GDP is forecast to climb by around 3.5%, and in 2011 it will be up by 3.4%. “We’re on the growth to recovery, but it’s going to be slow,” said Rogers.

“By the indications we see, U.S. rail traffic continued to recover in April; traffic was up 15% from last April [2009] and it’s up 7% year-to-date,” he said. “Coal rail traffic is back near normal levels, and all other products continue to trend higher.”

Gas markets “will recover over time, but we don’t think prices below $6 [per Mcf] are enough to stimulate production. Over time, gas will have to rise to $6 to continue to support production.”

Even with an oversupply of U.S. gas, there are about 970 rigs now drilling onshore for gas, which is “somewhat astounding to our view,” said Rogers.

So far, shale gas drilling is “performing quite well,” but he cautioned that there’s “not a lot of data” about long-term drilling in all of the North American shales. The only shale basin with a decade’s worth of production rate data is the Barnett Shale.

Rogers was asked about the “shale skeptics,” who include some energy analysts, as well as industry veteran Matt Simmons and Colorado School of Mines alum Arthur Berman. Last year Berman, who has done exhaustive research using Barnett Shale data, said he thought it ultimately would cost more than has been forecast to recover shale gas because of high decline rates (see NGI, Oct. 19, 2009).

“We like to see data,” said Rogers. “And the Barnett improvement [in technology] has been there,” allowing producers to continue to bring down production costs even as wells decline. “We like to do our own analysis on data. Unfortunately, there’s not a lot of data on the Marcellus,” and because of the lack of data, “you can have an opinion about that.”

Because of technological advancements in horizontal drilling and tweaks to reduce the costs of hydraulic fracturing, “these shale plays, the Marcellus, Barnett…all are within $3-5/Mcf as a break-even cost…

“For the prolific plays that are producing today, we still believe that in the longer term…there will be a higher cost of wells than today’s prices” because more wells eventually will have to be drilled to keep up with output rates, Rogers said.

“Shale is a real game changer,” he said of the North American rock. “It is all that it’s believed to be, as conventional gas in Canada continues to be in structural decline, [because of] global political implications, and cap-and-trade imposing some influences…Overall, we’re not going to need as much LNG [liquefied natural gas] as we thought we needed in the past. [Shale] has really changed the international gas markets…”

Rogers agreed with an audience member who questioned whether some shale producers are “fudging” data “to make some plays look worse than they are and some to look better to hold positions.”

Publicly held companies, Rogers said, “are driven by certain things…that we don’t really like. If there were astronomical production rates from every well that is said to have them, we’d be swimming in gas. You have to use conventional wisdom. The general sense is, I think you get a story that’s spun from your own perspective, but you have to muddle through that as best you can. Shales are real.”

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