Trying to figure out where the North American natural gas markets are headed over the next decade — or even the next five years — is a nearly impossible task, a panel of executives said Tuesday at GasMart 2010 in Chicago.
Ask six different energy analysts what’s ahead and it’s likely there will be six different outlooks, ConocoPhillips’ Will Hussey, senior vice president of origination, told the audience. Hussey shared a morning panel with David Slater, Nexen Marketing managing director of marketing and structured products, and Guy Braden, senior vice president of commercial operations for GDF Suez.
“It’s pure speculation” because of several “red flags,” said Hussey. Among them are how quickly or slowly gas shales are developed in North America, how the U.S. dollar stacks up versus Canadian currency, natural gas liquids (NGL) production, liquefied natural gas (LNG) imports, and possible carbon legislation.
“There’s a huge disparity in the numbers for all of the consultants,” Hussey said, referring to forecasts he compiled from six energy analysts. “There’s a huge disparity in the value of oil and gas, and the biggest driver right now is getting to be oily gas…”
ConocoPhillips is one of the biggest producers in the Eagle Ford Shale in South Texas, a gassy area with rich liquids content. “The liquids content is very, very high,” Hussey noted. “We want the NGLs” now because of the oil/gas price disparity.
Chesapeake Energy Corp. CEO Aubrey McClendon, said Hussey, “is saying the exact same thing. With the disparity in price, you do what you have to do to hold the leases and find oily gas” (see Daily GPI, May 11).
Nearly everything that was presumed in U.S. gas markets “is all up in the air with what’s happened in the last two years,” said the ConocoPhillips executive.
“In 2003, what we thought was that U.S. reserves were about 1,500 Tcf. From 2003 to 2008, shale became huge. It hasn’t been that long to get to 2,000 Tcf. Where will reserve be in five years? Supply is booming.”
Hussey asked the audience to remember 2003, “when we kept talking about a 30 Tcf market, and we needed all the LNG we could find to make that happen…”
Now with all of the new gas supplies, “we’re in the exact opposite situation…and very little demand…” and a lot more LNG coming onto world markets in the next year.
Some analysts see a tighter U.S. gas market because of falling Canadian imports. However, Hussey said that may not be the case.
“Canadian supply is going to be on a downward trend, but keep in mind that it’s not because there’s no reserves there. There’s plenty of reserves there. The thing to watch is the U.S. dollar versus Canadian currency. The supply picture could change in a day” if it became cheaper to drill in Canada than in the Lower 48 states.
A big unknown is the level of activity in the gas shale plays, Hussey said.
“You’ve got all of these independents in shale plays. How long do they have to continue to drill to hold them? Once they’ve done that and they can hold the leases, when will they make a decision to move off those leases?” to move to oilier plays or drop rigs.
Most people in the natural gas industry “are very familiar with the Barnett, Haynesville, Fayetteville, Marcellus, but that’s just the tip of the iceberg,” said Hussey. “There are shales all over the country.”
The question, he asked: “what price can they be profitable?” Energy consultant Wood Mackenzie, for example, said shales can be profitable at a price of $4-5/Mcf. “The majority of these shales are profitable now at sub $4, and in the $3 range some still make money…
If they can be developed at a price below $4, how big can they get?” asked Hussey. “These shales are huge, and these are just the ones we know about.”
Finally, he noted, “there’s carbon legislation…There’s nothing in any of these numbers to do with carbon legislation. That would be a very, very positive thing for gas.”
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