Workmen lay a gas pipeline in Decatur, Texas to carry natural gas discovered in the Barnett Shale field. (J.G. Domke/Bloomberg News)



Unexpected natural gas boom may ease U.S. energy crunch
By Clifford Krauss Published: August 25, 2008


(Page 3 of 3)
"If prices drop much more, producers will slow down or at least not be as aggressive," said Johnson, of Carrizo Oil and Gas.

Michael Zenker, a natural gas industry analyst at Barclays Capital, estimates that at $7 per 1,000 cubic feet "you begin to lose enough rigs to start to move from supply growth to supply decline."

McClendon, of Chesapeake Energy, has become the industry's most active salesman in trying to boost demand to soak up the new supplies.

Some of his arguments have been echoed by T. Boone Pickens, the Texas oilman, with the two of them maintaining that natural gas, if expanded to other uses - including transportation, which is now completely dependent on oil - could help the country reduce its petroleum imports substantially.


The Barnett was the first shale field to undergo major development, and production has gone up tenfold since 2001, so that it now produces 7 percent of the country's gas supply. At least two other shale formations, the Haynesville in Louisiana and Texas and the Marcellus in the Appalachian Basin of the Eastern United States, are believed to be even larger, though substantial production in those will take two to five years more.

Prospectors have identified at least two dozen shale beds in North America that could contain large amounts of gas.

A Deutsche Bank analyst, Shannon Nome, estimated in a report that production from the eight U.S. largest shale fields was likely to hit 6.6 billion cubic feet a day this year, or 11.8 percent of national gas production, and then rise to 14.5 billion cubic feet a day by 2011, or as much as 23 percent of domestic production.

Chris Ruppel, an energy analyst at Execution, an institutional brokerage firm, said, "Shale is the most significant domestic natural gas find in 50 years, which means the United States will become gas independent and more industrially competitive versus Europe for gas intensive industries such as chemicals, fertilizer, smelting iron and aluminum."

In the United States, real estate speculators are becoming overnight millionaires in Pennsylvania, Louisiana and Texas by buying up lands and selling them to companies that drill for natural gas.

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Wildcatters, or those who drill oil wells in areas not known in advance to be oil fields, are ordering every rig they can get their hands on and paying signing bonuses of $25,000 an acre, or about $62,000 a hectare, for the right to drill.

However, as the boom unfolds some energy experts urge caution in projecting how big the new supplies will be and whether they will alleviate the loss in productivity of conventional wells, particularly those in the Gulf of Mexico.

"It's hard for me to believe we will have more domestic gas production in six years than we have now," said Chip Johnson, president and chief executive of Carrizo Oil and Gas, a Houston company involved in several of the shale fields.

The U.S. Energy Department's 2008 estimates for shale gas reserves that may one day be economically produced stands at 125 trillion cubic feet, about a seventh of the most optimistic industry estimates. Jeffrey Little, a gas analyst at the Energy Department, said the government estimate was based on 2006 data and could increase after further testing.

"The larger reserves could very well be out there, but their magnitude is uncertain," he said.

Some industry experts warn that shortages of engineers and rigs, the scarcity of pipelines near some shale fields, and fights over land and water use could slow development.

In the Marcellus field, which stretches from New York State to West Virginia, drilling and pipeline work must be done over woody and hilly terrain, and enormous amounts of water are needed to fracture the shale. Drilling has been halted in places after local regulators caught companies drawing water from streams without permits.

"We see natural gas as potentially a very important transitional fuel, but we can't use it at the expense of our natural resources," said Kate Sinding, a senior lawyer for the Natural Resources Defense Council.

She warned that water-intensive drilling in shale could threaten local water supplies and aquifers. "We need to slow down and make sure we have the right regulatory regime in place," Sinding said.

Gas production in the United States was in decline from the early 1990s to 2005, before production from shale beds and some lesser unconventional fields led to increases beginning in 2006. In the meantime, consumption increased by more than 15 percent, satisfied largely by rising imports.

Prices in recent years soared from less than $2 per 1,000 cubic feet in 1999 to more than $13 as recently as last month, before a precipitous decline in recent weeks. Natural gas closed Friday on the New York Mercantile Exchange at $7.84 per thousand cubic feet, the lowest price since Feb. 1.

The production boom "is great news for both the fertilizer industry and U.S. food production," said Kathy Mathers, a vice president at the Fertilizer Institute, a Washington trade association. She said that half the country's fertilizer production capacity had shut down over the past six years because of the soaring price of natural gas.

Some in the gas industry are worried about continued price declines, however, saying a big jump in production may not be sustainable.


Page 3 of 3)
"If prices drop much more, producers will slow down or at least not be as aggressive," said Johnson, of Carrizo Oil and Gas.

Michael Zenker, a natural gas industry analyst at Barclays Capital, estimates that at $7 per 1,000 cubic feet "you begin to lose enough rigs to start to move from supply growth to supply decline."

McClendon, of Chesapeake Energy, has become the industry's most active salesman in trying to boost demand to soak up the new supplies.

Some of his arguments have been echoed by T. Boone Pickens, the Texas oilman, with the two of them maintaining that natural gas, if expanded to other uses - including transportation, which is now completely dependent on oil - could help the country reduce its petroleum imports substantially.












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