American Gas - March 2010 - (Page 8)

in the know increased by 4 percent (0.7 Bcf/d) on a year-over-year basis. in 2009, we witnessed the first real price competition between coal and natural gas. The market works: According to the eiA, the first material signs of coal to gas displacement began in February 2009 when gas prices first crept below $5/mmBtu. estimates of incremental gas demand as a result of coal displacement increased to 3 Bcf/d at its peak in the summer when gas prices fell below $3/mmBtu. Has a new, real price floor emerged for natural gas (i.e., coal)? How will coal prices respond in the face of high stockpiles, long-term supply contracts and global supply/demand balances? Understanding this price substitution and fuel competition is even more critical in the face of climate change discussions where both gas and coal are positioning for long-term market share. Tcf, released in December 2008). This resource development is occurring not only in traditional gas and oil states such as Texas, Louisiana and Wyoming, but also in Pennsylvania, Ohio and upstate new York. While conventional gas production in traditional midcontinent or Gulf coast areas is u.s. gas resource by type (tcf) Shale CBM Conv/Other 2,074 1,451 1,532 a Quiet revolution Despite the global recession and financial meltdown, a quiet revolution has occurred in north American gas fields. U.s. dry gas production increased in 2008 by an unprecedented 3.4 Bcf/d despite production declines from hurricanes Gustav and ike. Without those disruptions, production growth would have been closer to 5 Bcf/d or just under 10 percent year on year. And throughout 2009, in the face of sub $5/mmBtu gas prices and more than 50 percent fewer rigs drilling, U.s. production remained relatively stable. By historical standards, this is truly amazing. What is driving this situation? strong natural gas prices through the 2000s coupled with the application of improved hydraulic fracturing techniques and horizontal drilling enabled access to unconventional supplies, namely shale gas. estimates vary, but the United states may now be sitting on 50 to100 years’ worth of recoverable natural gas (note Potential Gas committee resource estimate of 2,074March 2010 AmericAn GAs Note: Gas resource includes proven, potential and probable reserves. Source: NPC 2003, PGC 2009 u.s. gas demand in 2020 by sector (tcf) Electric Industrial Res/Comm Other 32.1 26.9 23.3 expected to decline with lower drilling activity, increased production from new shale plays such as Haynesville and marcellus shale basins could offset these losses in the future. And this new shale gas supply is cheap! Breakeven cost estimates in these new plays are significantly lower than other conventional or unconventional plays. Producers today believe the economics will only improve as the industry shares best practices and becomes more efficient at developing the resource. We are witnessing a significant shift in the U.s. domestic supply curve: could we conceivably grow domestic production in a $5/mmBtu pricing environment when just a few years ago we struggled to do the same at $7–$8/mmBtu? To be clear, the producer with the lowest cost structure and access to the lowest cost supply will be best positioned for success. The introduction of these economic shale gas plays is driving a paradigm shift in the U.s. supply portfolio. couple this with 16 Bcf/d of LnG regasification capacity now available in the United states and canada (operating at only ~15 percent utilization rate) and the possibility of new northern frontier supply from Alaska and/or mackenzie Delta—the United states (and north America, for that matter) appears to be long on gas supply. Natural Gas: The Forgotten Fuel? At this critical junction in natural gas resource development, debates continue around energy market efficiency and climate change, with a mixed bag of conflicting and distorted data. The U.s. gas future will not only be shaped by evolving supply/demand balances but also by policy and regulatory changes. in its most recent long-term outlook, the eiA predicts U.s. energy demand will increase from 96 quadrillion (quad) Btu in 2009 (reflecting the recession) to 105 quad Btu in 2020—equal to almost one more state the size of Texas (from a demand Source: EIA AEO

Table of Contents for the Digital Edition of American Gas - March 2010

American Gas - March 2010
President’s Message
In the Know
Contents
Industry News
Safety First
To Be the Best
It All Computes
From Volatile to Variable
Vendor News
Advertisers' Index
Places to Be
Marketplace
Jobline
Noteworthies
Facts on Gas

American Gas - March 2010