Part 2 of 3 in a series covering the 2009 Developing Unconventional Gas Conference
By Austin Eudaly

Currently, we are seeing what is being commonly referred to as a natural gas glut in the US. Today, we have an over abundance of supply, and a not so copious demand. Thomas Gardner, Director for Simmons & Co. International discussed the causes and cures for this issue. Below are the highlights.

-There are several reasons as to why the US has a natural gas glut currently.

-In the late 1990’s the US natural gas supply was challenged. In 2001 production fell from 56 Bcf to 51 Bcf per day. In order to remedy this, the industry needed to increase production. The industry so successful in meeting this need, that supply exceeded 10% growth each year. Production rates went form 51 Bcf to 59 Bcf per day in 3 years time.

-This was not necessarily a bad thing. But suddenly, before we knew it, we had a problem. With all of the new natural gas coming to market via the prolific shale plays such as the Barnett Shale/ Fayetteville/ Haynesville etc., we had an oversupply problem occur. This, coupled with a decrease in demand brought on by last years economic crash has caused natural gas prices to fall to the miserly level they are now.

Hence, in Mr. Gardner’s opinion, here is the main cause of the “gas glut”.

“The over supply of natural gas was driven largely by impressive supply growth coupled with recession related demand destruction that can only be cured by a reduction in supply and/or increase in demand -- In short, E&P’s are largely a victim of their own success.”

In closing, Mr. Gardner gave a charge to the E&P industry and investors for 2009:

“Stay Alive until 2010” He felt this was a crucial outlook to have as 2009 will be a tough year for everyone. He is optimistic about 2010 and beyond though for the natural gas industry.

The Pickens Plan and Clean Energy Fuels

Andrew J. Littlefair, President and CEO of the Clean Energy Fuels Corporation spoke briefly about the current state of everything green relating to the petroleum industry. All of you have likely seen or heard about Mr. T. Boone Pickens plan for national energy. Mr. Littleair is Boone’s right hand man in these matters. A few quick highlights over his talk:

- Mr. Littlefair believes that their company is making great headway in local and state governing bodies to create demand for Natural Gas fueled trucking fleets.
- It makes sense: Cleaner, Cheaper, Domestic
-Over 118 years of natural gas reserves in the US
- Increased reserves 42% in the last 10 years
- 13% increase just in 2007
- New discoveries: 21 shale basins in 20 states

In addition, there was a good deal of technical jargon discussed that the majority of you might not care to sit through and read. Personally, I’d rather watch the Masters this weekend with some chips and salsa than look at a lot of mud logs and economic graphs. So I’ll spare you the information on those topics for now. If anyone that has specific questions regarding those types of issues, please feel free to email at the information given below.

So what can you as a land owner/ mineral owner do at home to help improve the situation in the US today for natural gas?

-Continue to speak with local representatives and share your opinions on the petroleum industry
- Get involved to try and push for CNG incentives
- And as one speaker put it, “Find a friend and tell him to burn gas”


Best,


Austin Eudaly
Dallas, Texas
Autin.eudaly@gmail.com


On Monday...Which shale play is king??

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Comment by red rider on April 15, 2009 at 0:39
I don't agree with the price either, but if a glut is given to help drive prices down, then it could possibly happen. heck, i'd love to see the price around 10 or higher, as would all haynesville shalers. and the drop in price would hopefully be very temporary. especially if the suppliers aren't drilling as much nat gas. I wish prices would creep back to 8 or 10 or much higher. it seems to be a wait and see game.
that price of $2 and some change is just speculation. hopefully it will stay above 3.50! and start climbing higher.
Comment by Scott on April 13, 2009 at 9:50
Not sure I agree with you on such a low gas price in the future. I agree gas prices should stay low but your figure appears quite low.
Comment by red rider on April 13, 2009 at 0:45
well, that should depress prices down into the $2 range. (possibly the mid to upper $2 range), maybe even lower. hopefully Pickens plan will get the gas moving, so that the supply will drop, and in turn drive prices higher. Guess, we'll just have to wait and see how this plays out.
Comment by red rider on April 11, 2009 at 23:58
absoluetly, i can't seem to find the article but i believe China has agreed to contracts with Russia for a portion of their oil and gas. As well as China buying up reserves where ever they can. remember a few years ago when China tried to buy out that oil company in California? I can't recall the name of that comapny, but China was offering 19 billion in cash. The US senate blocked it, after the people flooded their emails and voicemails. and another US oil company bought it. but i may be wrong, but that may have been the start of China starting to secure oil worldwide.

despite one of the worst recessions in recent world history, oil demand has only contracted by less than 2%.
Whereas oil companies are shutting down rigs for oil/gas. eventually demand will exceed supply, until the oil companies can get the rigs back up to speed to meet demand, if they can ever match demand. meanwhile oil and gas prices will have to jump much higher. and it may be sooner than we think.
Comment by Martin on April 11, 2009 at 14:26
Saw a recent newspaper article about how Total had just completed (last fall I believe) a pipeline and LNG production facility in Yemen for US$4 billion. After Europe, wouldn't the Asian countries of China, Japan, and India be the most likely potential markets for LNG?
Comment by red rider on April 11, 2009 at 1:23
Russia is the largest natural gas producer in the world, and holds the largest reserves of natural gas in the world, and WSJ (wall street journal) on 04 Mar 09, an official from Gazprom (Russian oil/gas company) claims that they could easily see production drop 20% year after year. Russia supplies nat gas to Europe. about 20% comes from the Ukraine going to Europe.

Which means, Russia and Europe need nat gas. it gets cold up there. So, it looks like Russia and Europe will be bidding out each other for LNG (liquid natural gas). Where is that LNG coming from? could be USA?
Wherever it comes from will have to drive nat gas prices higher.
Note: there are only a handful of maritime vessels that can carry LNG. very volatile stuff. so nat gas price has to come up. combined with Pickens plan, we should see things improve. regarding nat gas prices.

Question: how much (percentage) of Haynesville shale nat gas stays in Louisiana?
I say export the rest!

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