What Questar thinks about the Haynesville, Natural Gas, and the Current Administration
Rattie: Haynesville May Be One Of The Biggest Natural Gas Fields In The World
“The Haynesville shale is perhaps one of the best illustrations of ... stunning breakthrough,” the Questar Corp. chairman, president and CEO in a recent webinar.
The Haynesville shale may be the biggest natural gas play in the U.S. today. “Some think it may be one of the biggest gas fields in the world,” says Questar Corp. chairman, president and chief executive Keith Rattie in the webinar “’Inconvenient’ Realities Of Energy, And The Role Of Natural Gas” hosted by OilandGasInvestor.com and now available on demand for review.
“And the irony here is that, until mid-March of 2008, very few people in the industry and certainly nobody in Washington had ever heard of the Haynesville shale.”
The Salt Lake City-based integrated gas company is among gas producers operating in the northwestern Louisiana/northeastern Texas play, holding a position in what is proving to be the “sweet spot” of the producing trend.
“The Haynesville shale is perhaps one of the best illustrations of that stunning breakthrough in our ability to exploit the resource base in this country,” Rattie says in describing whether the U.S. has sufficient natural gas supply to support conversion of more U.S. energy demand off oil and coal to natural gas.
“What we’ve seen in recent years is that technology that was first adapted to exploit gas in the Barnett shale in the Fort Worth Basin in Texas has now been applied to a series of major new shale plays that just a few years ago most observers thought would never be commercially viable.
“We have the Fayetteville shale, the Haynesville shale, the Marcellus shale and, in Canada, there are the Horn River shales. You’re going to see horizontal drilling technology and, in particular, multi-fracture-stimulation technology applied to rock that we thought was unproducible just a few years ago.”
At the current rate of U.S. natural gas consumption, many gas-market observers suggest North America hosts a 100-year supply of proven, producible reserves.
Rattie says, “Over time, that number will prove to be conservative. Many policy-makers are hung up on the fact that natural gas supplies are finite, and that of course is true, but human ingenuity is not (finite) and over time, the smart people in our industry, using advances in technology, are able to extend our natural gas resource base.”
Since 1980, the U.S. has consumed more than 600 trillion cubic feet of gas and the known resource base today is at least three times what it was believed to be then, he says. “If we are having a conversation like this 20 years from now, we will find that, during the next 20 years, we will probably, in this country, use another 500 to 600 Tcf of natural gas and our resource base will be even greater than when we started out.”
Currently in Washington, the coal lobby is winning in “a game of trying to buy enough votes. And the game is getting rigged; the coal industry is better at playing that game than the natural gas industry. And my concern right now is that we’re going to see legislation that has the unintended consequence of allowing the continued use, and perhaps greater use, of coal to the disadvantage of natural gas.
“If you left the playing field level…natural gas will win. But politicians will have a way of gaming the rules so market-based outcomes are not always the ones that are realized.”
The natural gas industry can win on the product’s favorable environmental profile.
“Many (environmental) groups despise drilling for natural gas more than they fear the impact of climate change. It’s a sad reality. What we as a natural gas industry have to do is reach out to responsible environmental groups. We have, as an industry, every right to claim the moral high ground on this issue.
“We find, produce and deliver a clean, safe and environmentally friendly fuel to 65 million American homes and businesses in this country. And by choosing not to develop our most environmentally benign fuel—and I stress that word “fuel”—the unintended consequence is that we are going to burn more coal, import more oil and run our aging nuclear plants harder than ever.”
Aggressive climate-change policy will be difficult to effect if the Obama administration wins in its quest to eliminate oil and gas producers’ tax credits for intangible drilling costs (IDCs).
“We need to have policies that allow the industry to consistently invest in development of new supplies…IDC expensing has been part of the U.S. tax code since, I think, 1913. (Eliminating it) will have the effect of reducing U.S. producers’ cash flow by somewhere from 20% to 30% in the first year. Most U.S. producers operate under a simple rule: Cash flow equals capital spending.
“If you eliminate the expensing of IDCs—and I believe that is a wrong-headed policy—you will have the unintended consequence of reducing investment in natural gas supply.”
He urges producers to at least “do just one thing when policy-makers talk about sweeping changes in the way we use energy in this country and that is to do the math. Do the math.”
He concludes that the best policy is to let various energy sources compete. “The reality is there is no perfect form of energy. Only markets can weigh the pros and cons of various types of energy, and let the markets do the job.”
“The Haynesville shale is perhaps one of the best illustrations of ... stunning breakthrough,” the Questar Corp. chairman, president and CEO in a recent webinar.
The Haynesville shale may be the biggest natural gas play in the U.S. today. “Some think it may be one of the biggest gas fields in the world,” says Questar Corp. chairman, president and chief executive Keith Rattie in the webinar “’Inconvenient’ Realities Of Energy, And The Role Of Natural Gas” hosted by OilandGasInvestor.com and now available on demand for review.
“And the irony here is that, until mid-March of 2008, very few people in the industry and certainly nobody in Washington had ever heard of the Haynesville shale.”
The Salt Lake City-based integrated gas company is among gas producers operating in the northwestern Louisiana/northeastern Texas play, holding a position in what is proving to be the “sweet spot” of the producing trend.
“The Haynesville shale is perhaps one of the best illustrations of that stunning breakthrough in our ability to exploit the resource base in this country,” Rattie says in describing whether the U.S. has sufficient natural gas supply to support conversion of more U.S. energy demand off oil and coal to natural gas.
“What we’ve seen in recent years is that technology that was first adapted to exploit gas in the Barnett shale in the Fort Worth Basin in Texas has now been applied to a series of major new shale plays that just a few years ago most observers thought would never be commercially viable.
“We have the Fayetteville shale, the Haynesville shale, the Marcellus shale and, in Canada, there are the Horn River shales. You’re going to see horizontal drilling technology and, in particular, multi-fracture-stimulation technology applied to rock that we thought was unproducible just a few years ago.”
At the current rate of U.S. natural gas consumption, many gas-market observers suggest North America hosts a 100-year supply of proven, producible reserves.
Rattie says, “Over time, that number will prove to be conservative. Many policy-makers are hung up on the fact that natural gas supplies are finite, and that of course is true, but human ingenuity is not (finite) and over time, the smart people in our industry, using advances in technology, are able to extend our natural gas resource base.”
Since 1980, the U.S. has consumed more than 600 trillion cubic feet of gas and the known resource base today is at least three times what it was believed to be then, he says. “If we are having a conversation like this 20 years from now, we will find that, during the next 20 years, we will probably, in this country, use another 500 to 600 Tcf of natural gas and our resource base will be even greater than when we started out.”
Currently in Washington, the coal lobby is winning in “a game of trying to buy enough votes. And the game is getting rigged; the coal industry is better at playing that game than the natural gas industry. And my concern right now is that we’re going to see legislation that has the unintended consequence of allowing the continued use, and perhaps greater use, of coal to the disadvantage of natural gas.
“If you left the playing field level…natural gas will win. But politicians will have a way of gaming the rules so market-based outcomes are not always the ones that are realized.”
The natural gas industry can win on the product’s favorable environmental profile.
“Many (environmental) groups despise drilling for natural gas more than they fear the impact of climate change. It’s a sad reality. What we as a natural gas industry have to do is reach out to responsible environmental groups. We have, as an industry, every right to claim the moral high ground on this issue.
“We find, produce and deliver a clean, safe and environmentally friendly fuel to 65 million American homes and businesses in this country. And by choosing not to develop our most environmentally benign fuel—and I stress that word “fuel”—the unintended consequence is that we are going to burn more coal, import more oil and run our aging nuclear plants harder than ever.”
Aggressive climate-change policy will be difficult to effect if the Obama administration wins in its quest to eliminate oil and gas producers’ tax credits for intangible drilling costs (IDCs).
“We need to have policies that allow the industry to consistently invest in development of new supplies…IDC expensing has been part of the U.S. tax code since, I think, 1913. (Eliminating it) will have the effect of reducing U.S. producers’ cash flow by somewhere from 20% to 30% in the first year. Most U.S. producers operate under a simple rule: Cash flow equals capital spending.
“If you eliminate the expensing of IDCs—and I believe that is a wrong-headed policy—you will have the unintended consequence of reducing investment in natural gas supply.”
He urges producers to at least “do just one thing when policy-makers talk about sweeping changes in the way we use energy in this country and that is to do the math. Do the math.”
He concludes that the best policy is to let various energy sources compete. “The reality is there is no perfect form of energy. Only markets can weigh the pros and cons of various types of energy, and let the markets do the job.”
Views: 35
Replies to This Discussion
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Permalink Reply by Skip Peel - Mineral Consultant on
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Jay. I agree with Mr. Rattie's opinion regarding the political clout of the coal coalition. And the need for the natural gas coalition to increase it's public profile and political clout. What stands out to me is Mr. Rattie's comments that, "The natural gas industry can win on the products favorable environmental profile." And then, "Many (environmental) groups despise drilling for natural gas more than they fear the impact of climate change." That is a stunning statement. How is it that environmental groups have such an anti-natural gas phobia? Is his statement in this regard accurate?
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Permalink Reply by P.G. on -
Could it be the environmentalists are simply anti any kind of fossil fuel no matter what it is or how clean it is?
No common sense about reality is more like the norm from those folks.
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Permalink Reply by Skip Peel - Mineral Consultant on
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P.G. I do not subscribe to the notion that all environmentalists are irrational. I think many would admit that alternative energy is a work in progress and an interim energy bridge is a reasonable means to the end. I return to the comments about the relative political clout of the coal industry versus the natural gas industry. It is a no-brainer for the natural gas lobby to offset much of coal's political advantage by aligning with the proponents of alternative energy. I understand the NG Industry's concerns with IDC's and deletion. I do not understand their inability to build the political alliances required to effectively compete in the energy debate.
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Permalink Reply by P.G. on
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Well it seems so obvious that NG would be the best bridge to fix a host of energy problem one should find it suspect that it's not being considered any more than it is. NG could at least help stabilize energy prices from all sources and create competition which would eliminate anyone having political leverage like the Arabs have had.
It doesn't appear common sense is being given much precedence in the judgement we are witnessing from our leaders.
I don't believe our country's best interests are being considered over money and influence.
Pickens was correct in saying we need it all. This division between types of energy isn't benefiting anyone.
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Permalink Reply by Spring Branch,mineral owner on
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You should, KB, because they are in the sweet spot!
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Permalink Reply by Les Bamburg on
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KB, the natural gas industry already has some very strong associations led by NGSA, AGA & INGAA. Because natural gas had been primarily produced in areas of the country (TX, LA, OK, NM, WY, CO) far removed from the east and west coasts it has not carried the same political clout as coal. It also has not been viewed as being as labor intensive (jobs) and not supported by any large unions. Maybe the Marcellus Shale and environmental issues will make a change.
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Permalink Reply by Skip Peel - Mineral Consultant on
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Though the Coal Lobby is powerful, so is the Environmental Lobby. And the Natural Gas organizations need a powerful ally in this political battle. The mutual interests of the two groups seem obvious and compelling. The greatest threat to air quality and global climate change is coal. Electric utilities and rail roads will line up behind coal. Natural gas interests need to be a team player on the opposing team. Led by the Environmental Lobby.
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Permalink Reply by Skip Peel - Mineral Consultant on
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I guess the "right persons" have not been stunned just yet. Come to think of it, many in D.C. could use a good stunning. I am sure we could find some volunteers amongst the membership.
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Permalink Reply by Carter on
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UNG's assets are the front month natty futures contract that trades on the NYMEX. It is just an easy way to play natty without using margin, etc.
Its safe to begin scaling in for a long term play at these levels with approximately a 25% position. Save 50% of your cash for when/if natty falls to $3 levels, which I think it will in the intermediate term. Save the last quarter to buy in the $2's if it gets there.
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Permalink Reply by Carter on
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As I said above, UNG trades the front month natty K. They roll their contracts over each month which can present its own set of problems which I won't go into here. I am giving you a $ estimate based on the price of the NG futures continuous K, not UNG. Natty closed today around $3.75 and UNG around $13.70. I don't know what the exact price of UNG would be if natty trades +-$3.00. My guess is <$10.
Natty is very high percentage win here if you have a long time horizon (possibly years) and excess capital to scale in if we drop another 30% (or more) lower. On a few hours to few weeks time frame, I have absolutely no idea where natty will be. What I said was, on a long term time frame, it is probably ok to begin scaling into a position here, maybe a quarter dollar for every dollar you are going to invest, with the expectation that we may have further decline. UNG is fine to use for this, as I would not suggest trying to directionally trade natty futures.
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Permalink Reply by Carter on
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Currently in Washington, the coal lobby is winning in “a game of trying to buy enough votes. And the game is getting rigged; the coal industry is better at playing that game than the natural gas industry. And my concern right now is that we’re going to see legislation that has the unintended consequence of allowing the continued use, and perhaps greater use, of coal to the disadvantage of natural gas.
“If you left the playing field level…natural gas will win. But politicians will have a way of gaming the rules so market-based outcomes are not always the ones that are realized.”
Absolutely correct. I have repeated this many, many times. We are putting in a multi year bottom in gas in terms of price over the next several months; because of stacked rigs, we mathematically have to go higher in terms of price in 2010. What concerns me is the demand equation. There is this perception of too much gas right now, and until we fix that part of it, there will only be more pain ahead. For the record, I am a non believer in terms of a quick economic recovery, so the answer to increased demand has to come from the political side, IMHO. And there are many beneficial reasons to be pro natural gas in terms of the environment and domestic energy policy.
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Permalink Reply by Bacon on
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Coal looks pretty damn cheap.
From http://www.eia.doe.gov/emeu/steo/pub/special/2009_sp_02.html
May 2009 Short-Term Energy Outlook Supplement
Short-Term Energy Outlook Supplement:
The Implications of Lower Natural Gas Prices for Electric Generators in the Southeast
Highlights
This supplement to the Energy Information Administration’s (EIA) May 2009 Short-Term Energy Outlook (STEO) focuses on changes in the utilization of coal- and natural-gas-fired generation capacity in the electric utility sector as the differential between delivered fuel prices narrows.
Over the last year the price of natural gas delivered to electric generators has fallen dramatically. Current natural gas prices now present increased potential for displacing coal-fired electricity generation with natural-gas-fired generation.
Because combined cycle natural-gas-fired electricity generators are generally more efficient than typical coal-fired units, consuming fewer Btu of fuel per kilowatthour of electricity generated, natural gas prices do not need to fall as low as coal prices before substitution of natural gas becomes attractive.
The delivered cost of coal is generally highest in the southeast region of the United States because of transportation costs from the coal-producing regions such as the Powder River Basin in Montana and Wyoming. Consequently, the greatest potential for natural gas substitution for coal is expected in the East South Central (ESC) and South Atlantic (SA) Census divisions.
Based on December 2008 average delivered coal prices of $2.58 per million Btu (MMBtu) in the ESC and $3.06 per MMBtu in the SA, a decline in the average delivered natural gas price from $4.75 to $4.25 per MMBtu in each region could boost natural gas consumption for baseload electricity generation in the electric power sector by about 2.1 billion cubic feet per day (Bcf/d) in the ESC and SA combined.
The extent of potential increased natural gas consumption in the electric power sector because of lower natural gas prices relative to coal still remains highly uncertain. The ability of the electric power sector to switch fuels for baseload power generation may also be significantly affected by several other factors such as contractual obligations, particularly for delivered coal, constraints in the capacity of natural gas pipelines or the electric grid transmission system, the availability of gas-fired combined cycle generation capacity and the ability of some regulated electric utilities to pass on costs to consumers.
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