A rebound in natural-gas prices and drilling activity is at least three to four years away, according to an analysis by Jen Synder, head of North American gas research for Wood Mackenzie.
“We see strong growth in the gas sector after 2012,” Synder said Tuesday in a presentation at the Colorado Oil and Gas Association’s annual conference in Denver.
The New York Mercantile Exchange natural-gas price — $3.37 per thousand cubic feet Tuesday — is less than a quarter of last July’s price, and drilling rigs have dropped from a 2008 high of 1,507 to about 700.
There are four “limiting factors” that will delay a rebound in the domestic natural-gas markets, Synder said.
• A “slow and measured” recovery of the national economy from recession. This will translate into less demand for natural gas, particularly from electric utilities — a major customer.
• New coal-fired power plants coming on line, a result of utilities switching to coal after repeated natural-gas price spikes. This will also dampen demand for gas.
• New liquefied-natural-gas depots coming on line that will bring imported gas to the market. These were investments made in the early 2000s, when it appeared domestic reserves of natural gas were declining.
• Growth in domestic shale-gas production. New technology has unlocked vast reserves of natural gas, boosting U.S. supplies 35 percent in two years to just more than 2 quadrillion cubic feet, according to the Potential Gas Committee, an independent assessment group.
Even though market prices are low, companies are continuing to drill in shale and bring on wells to protect their leases and develop their business, Synder said.
Wood Mackenzie projects drilling activity climbing to 740 rigs in 2010 and reaching 1,100 by 2012.
The other element that may affect the market is federal legislation dealing with climate change and what role natural gas plays in it, Synder said.
Mark Jaffe: 303-954-1912 or mjaffe@denverpost.com
