Wednesday, December 16, 2009

Has Natural Gas's Moment Come?

Wall Street Journal



"The U.S. Energy Information Administration predicts widening use of natural gas for power. In an outlook published Monday, the agency said natural gas will account for 46% of all power plant capacity additions from 2008 to 2035.

The abundance of gas is largely thanks to a new technique to unlock dense rock first tried successfully in the 1990s and early 2000s in the Barnett Shale under Fort Worth, Texas. Riding this success and fueled by cheap financing, energy companies fanned out across the U.S. in search of new fields.

What they found has fundamentally reshaped the industry's understanding of how much gas lay beneath the U.S. Huge new fields in Louisiana, Arkansas, Pennsylvania and elsewhere could give the country a 100-year supply of gas, a sharp reversal from earlier predictions that the U.S. would begin relying heavily on gas imported from overseas. After years of decline, U.S. gas production shot up 12% from 2005 to 2008.

One of the most unexpected signs of the growing comfort that gas is becoming a more stable commodity are the negotiations between producers and consumers over long-term contracts for gas supplies.

Larry Nichols, chairman and CEO of gas-producer Devon Energy Corp., said that in the past, companies were forced to search for new gas each year, making long-term contracts impractical. But the recent shale discoveries are different—they are huge and extremely reliable, meaning they can reliably strike multi-year commitments to provide gas. Devon, for example, has drilled 4,000 wells in the Barnett Shale without a single dry hole, and still has thousands of places left in the field to drill.

"There's certainly the potential for the natural-gas producers and the utilities to develop a new relationship that has not been possible historically," Mr. Nichols said." Aritcle>>>>

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