The Natural Gas Glut and the Doctrine According to Hefner

By Kennedy Maize

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Prices Falling, Reserve Estimates Climbing

For electric generators, the good news as 2009 rolls to an end is that natural gas—the cleanest, by any measure, of fossil fuels—has defied most predictions and has turned into a plentiful producer of electricity. The most recent reports from the U.S. Energy Information Administration found natural gas prices at the Henry Hub at $2.76 per million Btu, and futures prices at the New York Mercantile Exchange September contracts were at $2.91 per MMBtu. A couple of years ago, the price was around $9.

Bolstering the low gas price forecasts—after a period in which analysts said natural gas would rise to track crude oil prices—the U.S. Potential Gas Committee (PGC) issued a report that estimated U.S. reserves at 1.8 trillion cubic feet. That’s the highest in the committee’s 44-year history and 40% above its 2006 estimate. John Curtis of the Colorado School of Mines, and head of the committee, said that the estimate “reaffirms the committee’s conviction that abundant, recoverable natural gas resources exist within our borders, both onshore and offshore, in all types of reservoirs.” Wholesale prices fell, reflecting the optimistic supply predictions.

The PGC is an independent, industry-funded institution that examines natural gas reserves in the U.S. Said Curtis, “Our knowledge of the geological endowment of technically recoverable gas continues to improve with each assessment. Furthermore, new and advanced exploration, well drilling, and completion technologies are allowing us increasingly better access to domestic gas resources—especially ‘unconventional’ gas—which, not all that long ago, were considered impractical or uneconomical to pursue.” That’s a reference to gas contained in shale deposits, which have become a booming business for gas exploration and development companies, using hydro-fracturing technologies to release previously unattainable gas bound up in sedimentary formations. It’s a play that involves both western shale and the large Marcellus deposit in the Northeast.

In a press release, the PGC noted, “When the PGC’s results are combined with the U.S. Department of Energy’s latest available determination of proved gas reserves, 238 Tcf [trillion cubic feet] as of year-end 2007, the United States has a total available future supply of 2,074 Tcf, an increase of 542 Tcf over the previous evaluation.” That’s a stunning figure, representing an increase of over 25% above previous estimates.

LNG Left in the Dust

Among the implications of the latest natural gas estimates for the U.S. is a crash in plans for imported liquefied natural gas (LNG) terminals in the U.S. Three years ago LNG was the rage of the age, with predictions of terminals across the coastal U.S. Dan Yergin’s Cambridge Energy Research Associates firm was bullish on LNG, predicting a worldwide boom in LNG. The political foment over LNG projects in U.S. ports has vanished from public view, as reflected by Google searches.

I was unable find any recent, publicly available material on LNG on the CERA site, although there was reporting available to paying customers (the price tag is very high). I suspect, and I would like to hear from any CERA insiders or customers, that the consultancy’s enthusiasm for LNG has cooled considerably on current and projected natural gas prices.

—Kennedy Maize is MANAGING POWER’s executive editor.

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