By Eileen O'Grady
HOUSTON, March 5 U.S. utilities have withdrawn a
record amount of natural gas from underground storage to meet
heating and power needs during an extremely cold winter, but gas
producers say they are confident they can rebuild inventory.
"We believe North America has the capacity to supply far
more natural gas than we are doing now at a reasonable price,"
said William Maloney, Statoil's executive vice
president of development and production for North America,
speaking at the IHS CERAWeek conference in Houston, an annual
meeting of global energy leaders.
Some traders have expressed doubts that inventories would be
rebuilt in time for next winter, but Maloney said the biggest
challenge is not supply, but demand.
"Is there enough demand to lead to sustained higher prices
and can matching midstream and upstream capacity happen in a
Maloney noted that the number of rigs looking for gas has
fallen, but gas production has kept rising as the industry finds
more efficient methods to drill and complete wells in U.S. shale
At Statoil, which produces in the Marcellus and Bakken
formations, drilling efficiency gains have been in the 25 to 50
percent range, Maloney said. "We are not going to stop
The long and bitterly cold winter season has reduced gas in
storage to the lowest level in a decade, according to government
estimates, leading some traders to project that gas inventory
will end the winter season with less than 1 trillion cubic feet,
much below the record storage levels seen in the past few years
as shale gas production soared.
"In the space of just a few short months, the multi-year
surplus has disappeared with the rapid system-wide destocking
that has fundamentally altered our outlook on the market," Teri
Viswanath, director of natural gas strategy at BNP Paribas, said
in a note earlier this week.
"Despite the industry's best efforts to bring additional
supplies to market, we believe that it will take more than a
single injection season to swing the market back into
equilibrium," Viswanath said.
Maloney declined to comment on the current storage level, he
said Statoil has recently brought new wells online after falling
a little behind. "The rigs are not going away; we will continue
drilling," he said.
Bob MacKnight, an IHS director, offered a more cautious
outlook, saying gas prices must rise to $5 per million British
thermal units "for a sustained period" to get producers to boost
"The forward curve is telling them not to go out and drill a
gas well," MacKnight said.
To meet the growing appetite for gas to fuel new power
plants and as a feedstock for the petrochemical industry,
additional infrastructure must be built, said William Lawson,
vice president of The Williams Cos.
"Infrastructure is the vital link to allow producers to
achieve the economic return they need in order to sustain
development and keep rigs in the basin," said Lawson. "It is
also the assurance that the demand (side) ... needs to have to
invest billions and billions in growing their consumption of
The Marcellus shale region alone could need $26 billion in
gathering lines, pipelines and other processing equipment in the
next decade, Lawson said.
While the producers said abundant gas from shale formations
will supply the United States for many decades, cost and
regulation will always be issues, said Rob Franklin president of
ExxonMobil's gas and power marketing company.
"In January, we broke the record for (gas) demand five
times," said Franklin. While prices spiked in response to some
gas constraints, there were few problems, he said.
"There are enough rigs," he said. "We are more than able to