The market has a few surprises around the corner when it comes to gas prices, and shale plays could be the culprit.

By Meredith Cantrell - News Editor August 9, 2010 Print E-mail
While shale unconventional gas plays have revolutionized the market with unprecedented amounts of gas, found by revolutionary (and therefore controversial) methods such as fracing, there are those that see a marked decline in gas prices due to overabundance.

Bentek Energy LLC, in company statements, reports that last year’s unique confluence of market conditions that drove 1 trillion cubic feet (Tcf) in coal-to-gas fuel switching in the power sector was a “head fake” –a false market signal that appeared to promise that increased power burn demand would help offset ongoing supply growth in the shales.


Unfortunately, the market trend will see no such luck. The problem remains clear that while gas continues to make apparent gains in the power sector, that rate of increase is expected to decline. Oversupply of gas is occurring too quickly for market demand to keep up.


In fact, present gas-fired plants might reduce use of coal-fired electricity by 5% to 9%. Even though the numbers’ potential appears to be substantial, due to the fact that many gas-generating units are underutilized, practical problems intrude. Over-regulation and the fact that, although coal is a low-cost fuel, coal-fired and gas-fired plants often serve different markets altogether.


“The higher gas burn in 2009 was interpreted by some as evidence of a possible ongoing upswing in the demand curve to help offset the growth in shale-gas production,” says E. Russell Braziel, Bentek Energy’s managing director, “but the dynamics of coal-to-gas switching in 2010 have turned out much different. And when we look forward to the 2011to2015 time frame, the most likely scenario is for moderate levels of coal-to-gas switching and increases in gas-fired power generation demand.”


Bentek’s reports indicate that demand from the power sector will grow only a mere 13% during the next five years. On the supply end, U.S. gas production is projected to remain on its current growth trajectory due to technology improvements, such as fracing, which unlock these previously untouchable resources.


These high gas storage levels are anticipated to surpass those of 2009. “This isn’t the end,” says Colorado School of Mines geologist John Curtis. According to one study, the complete estimated recoverable supply of gas was projected to be 16,200 Tcf.


That number is more than 150 times today’s annual world gas use.

Article by Meredith Cantrell - News

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