Is Natural Gas a Component of Your Drilling Project?

When deciding between various drilling project opportunities it makes good sense to make certain that the project has a healthy natural gas as well as oil potential.  Industry observers continue to expect oil prices to abate somewhat in the coming months and years.  Natural gas prices, on the other hand, are likely to remain high and could go much higher.  Even before hurricanes Katrina and Rita, US natural gas supplies were already tight and trending tighter.  Unlike oil that can be easily imported, 95 percent of all natural gas consumed in North America is produced here.  This means that, for better or worse, we are stuck with the supply of natural gas we can produce.  Here’s why: We currently import around 5 percent via LNG terminals.  While new terminals are coming on line, the EIA projects LNG imports to increase slowly over the coming years.  Planned new LNG terminals in California, Maine and Massachusetts have been experiencing strong resistance.  Perhaps the new energy bill and the folly of locating more LNG terminals in the gulf region will push these efforts along.  But constructing new LNG terminals will take years even if they receive an immediate green light.   In the meantime even though the number of producing natural gas wells in the US has increased the total production volume has continued to decline.  At the same time Canada, which has been exporting 20 percent of the natural gas consumed in the US is projecting lower export volumes for the next few years.  While some utilities can switch to coal electricity production and consumers can turn down their thermostats thus reducing demand somewhat, it’s unlikely that it will be enough in the near term to bring demand in line with supply.  Add it all together and we are looking at a situation where natural gas prices have no where to go but up.  This is why we look for a strong natural gas component in every potential drilling investment project.  It just makes good sense!