| HOUSTON, June 20
HOUSTON, June 20 The prospect of cheap natural
gas prices fueling an industrial renaissance in the United
States is at odds with the needs of gas producers, an energy
economist said this week.
U.S. gas production from prolific shale formations is
expected to reach 73 billion cubic feet a day this year, the
fourth annual record output, according to government
But continued growth is unlikely unless current prices rise
substantially, said Gurcan Gulen, senior energy economist at the
Center for Energy Economics in Houston.
"Cheap gas is a relative term," Gulen told members of the
Gulf Coast Power Association. "If $3-$4 (per million British
thermal unit) is what your expectation was, it's probably not
sustainable in the long run."
"Most producers in most locations are not going to make the
money they need to continue to drill," Gulen said.
The Center for Energy Economics is part of the University of
Texas' Bureau of Economic Geology.
The center has done extensive research on the various U.S.
shale formations to determine the amount of oil and gas that can
be recovered and at what price companies can profitably continue
to drill and invest.
Exploration and production costs for companies like Exxon
Mobil, Chesapeake Energy and Anadardo Petroleum
vary widely from one shale play to another and even
between wells in the same formation, Gulen said.
A gas futures price around $4 per mmBtu "is probably not a
long-term sustainable price in North America if you want to get
more gas out of these shale plays," he said. "Six dollars might
be a more reasonable expectation."
Forward gas prices on the New York Mercantile Exchange have
been climging this year, but are running below $5 per mmBtu
U.S. gas output has grown even as the rig count has fallen
through increased drilling efficiency.
"Companies are drilling a lot more wells with one rig,"
Gulen said. "If demand increases, we have got to increase the
rig count and go back to Haynesville and other dry gas areas."
Understanding the potential of the nation's shale resource
base is still a work in progress, he said.
"The shale potential is huge, but we are still learning how
much we can produce from where and at what price on a commercial
basis," Gulen said.
Experts see demand for gas rising over the next few years
from new petrochemical plants and other expanded manufacturing
facilities, from exports of liquefied natural gas (LNG) and for
Compared with government estimates, Gulen expects to see
less new gas demand for LNG exports but more demand from
utilities as coal plants retire and nuclear plant licenses
"All of a sudden, in 2017, we have a huge demand shock, and
whether the supply industry is getting ready for that is a
question," Gulen said.
(Reporting by Eileen O'Grady in Houston; Editing by Ken Wills)