Wednesday, September 30, 2009

Standing at the Crossroads

The Wall Street Journal has a great short article about the big picture for the natural gas industry. I feel like I’ve been saying the same things, but posting these thoughts over time in an erratic fashion tends to dilute my message. The article says it well – check it out (link should be good at least seven days).

The natural gas industry is at a very important point. The arrival of shale gas has completely changed the supply paradigm for the industry. North America is awash in natural gas. The question now is what happens on the demand side?

The biggest prospect for gas is to power more electric power plants, and the incredible opportunity that presents itself is the current move to revise our nation’s energy policy to limit greenhouse gasses. This is a tailor-made situation for gas, which when burned has half the carbon output of coal and almost none of the other pollutants like mercury and sulfur.

Unfortunately, the gas industry had its head in its rear when it came time to lobby the House of Representatives and was “schooled” by the coal lobby. There is still a chance to change the policy in the Senate, but coal still has the more powerful lobby supporting an inferior and dangerous product for which it will fight to the death (think: tobacco).

If new demand drivers are not found for natural gas, the price of gas will be capped for the foreseeable and producers will be fighting a constant battle to keep a lid on production while still drilling new wells. It will not be pretty. The gas industry stands at the crossroads and the outcome of the energy/climate debate in Congress will largely determine its future, at least for the next few years.

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