Sunday, June 21, 2009

Canadian Auction and an Interesting Week

Last week was very exciting for the natural gas industry. The big news was the Potential Gas Committee's assessment that the natural gas resource in the U.S. is larger than previously stated, largely because of our greater ability to access shale gas formations. Also last week, the government of British Columbia, Canada sold eight drilling licenses to the Horn River Basin in NE BC for C$173 million. Many geologists see the Canadian shale formations as similar geologically to the Haynesville Shale. I haven't studied this, but I'll take their word for this.

On the surface, the prospect of such an ample natural gas supply is a little frightening, especially when you add the proposed Alaskan Pipeline to the Lower 48 and LNG imports to the mix. Gas prices are getting killed this year because of the combination of high supply levels and diminished demand.

While supply is hurting price right now, it is important to look at the expanded future supply as an opportunity. There is greater proof now that natural gas is abundant in North America. We already knew it is far cleaner than coal and oil. These reports should give policy makers greater confidence in endorsing initiatives to incorporate natural gas in transportation and power generation.

Price spikes that have given gas a bad reputation often came from supply shocks. I believe that if the natural gas industry can demonstrate economically feasible access to vast quantities of gas in North America, the price of gas should be less volatile in the future. There will always be some volatility in a natural resource commodity, but dependable supply should improve price stability for natural gas and help make it the fuel of the future.

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