Natural Gas Is Next Big Energy Gold Rush, Indus Execs Say
DENVER (Dow Jones)--Natural gas demand is at an all-time high as the U.S. enters a period of unprecedented use of the fossil fuel to heat and cool homes even as the short-term price outlook remains soft, executives at an energy conference said Monday.
September gas futures on the New York Mercantile Exchange settled lower Monday for the third straight day at $6.913 per million British thermal units. T
he market is almost purely weather-driven, and cooler temperatures and no tropical storms have depressed prices, executives said. "The natural gas markets are going to be a weather call," said Jeff Mobley, senior vice president of investor relations and research at Chesapeake Energy Corp. (CHK) on the sidelines of an oil and gas conference in Denver hosted by Enercom.
Whatever the future weather brings, blistering heat during the last two weeks of July put a dent in the nation's storage surplus. In March, the nation had 67% more gas in storage over the five-year average. That number dwindled to 16% last week.
Too much natural gas in storage come fall is no longer a big, looming issue, Mobley said. "If you have warm winter, 3.5 tcf (trillion cubic feet) of gas will be too much," Mobley said. "If you have a cold winter, it may not be enough."
Other executives agreed. Fred Barrett, chairman and CEO of Bill Barrett Corp. (BBG), a natural gas production company, said during an interview Monday it only takes five to 10 days of cold weather to wipe out about 400 billion to 500 billion cubic feet of gas.
Furthermore, Barrett said, natural gas consumption in the U.S. is at its all-time peak with strong residential electricity generation as well as industrial demand coming back online. "You're seeing the earliest phase of natural gas history for the next 30 to 50 years," Barrett said. "Energy use goes in 50-year swings. You had wood, then coal, then oil and now natural gas."
The U.S. Energy Information Administration, the statistical arm of the Department of Energy, predicts residential natural gas consumption will increase by 9.1% in 2007 in its most recent short-term energy outlook. Industrial growth for natural gas consumption will grow by 2.8% in 2007, the EIA estimates, after demand was hampered by the high price of gas following last year's hurricanes.
Executives of producing companies posited how much U.S. gas demand will be filled by liquefied natural gas from overseas or by exploration and production of domestic gas as the price of drilling equipment rises on high steel prices and a "gold rush" mentality to drill for gas supplies.
Aubrey McClendon, president and CEO of Chesapeake, said LNG is a concern for domestic producers and should the nation become "awash" in LNG that the company would shut down some rigs. The price of gas would always find an equilibrium, he said.
All of the prosperous gas plays have been spoken for, McClendon added. Chesapeake announced last week that, with local approval, it will drill for gas in the Barnett Shale under the Dallas/Fort Worth International Airport. "It's the last big prize," McClendon said, after noting that the years between 2000-2006 will go down in history as the last big Western land grab for natural gas acreage.
As for drilling programs, Barrett maintains that the Rocky Mountain region, which he called, "the Middle East for gas," is the place to be. Some 80% of the Rockies is still unexplored, he said. Unlike the Barnett Shale, which faces steep production decline rates after the first year of drilling, the Rockies promises horizontal wells that will produce for decades, Barrett said.
-By Jeanine Prezioso; Dow Jones Newswires; jeanine.prezioso@dowjones.com |
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