New demand sources will take care of US gas supply glut, policy analyst says

by Mark Passwaters

Source: SNL

The sudden wealth from U.S. natural gas has taken most of the nation by surprise but new demand sources should help even the equation, National Center for Policy Analysis fellow H. Sterling Burnett told SNL Energy.

Burnett, who recently completed an issue brief on hydraulic fracturing's pivotal role in the shale gas revolution, said he was caught off guard during his research by the amount of gas the U.S. now has at its disposal.

"One thing that surprised me was natural gas," he said. "In the early 2000s, when gas was trading at about $14/MMBtu and I was asked if this was as sign of things to come, I said, 'We've probably only got 70 or 80 years left.' I didn't see the fracking revolution. I was off base, but I think everyone was off base, because nobody anticipated the fracking revolution."

Even though the U.S. has a supply glut when it comes to gas, Burnett said he is already seeing signs that the problem could be short-lived.

"I think the glut will take care of itself," he said. "I would argue you're going to see a revolution in transportation. I think hybrids won't be the way to go, it will be natural gas vehicles. It's already starting with fleet vehicles, trucks and delivery vans."

The primary source for natural gas demand, Burnett said, will be electric generation as new regulations from the Obama administration will "take care of" coal plants.

"They're more open to greater fossil fuel usage for peak loads and to back up [renewable sources]," he said. "Green power is always supplementary power at best."

In his issue brief, Burnett argued that the administration has taken away greater avenues for natural gas use through regulatory activity while boasting of increased production.

"The Obama administration has a real commitment to doing something about greenhouse gases, and anything that contributes to it, he's against it," Burnett said. "He sees [gas] as a transition energy and not something that they need to promote because the private sector is doing that anyway. I think it's a concerted effort by the administration to reduce energy use based on fossil fuels while taking credit for the good things at the same time."

Burnett said the administration and environmental groups continue to take aim at the use of hydraulic fracturing itself, even though their arguments have little to stand on.

"So much is being written about the negatives, even though I think those negatives are isolated and anecdotal," he said. "What I've found is where you have these problems is they're not endemic or inherent to the industry. Where they happen is with bad operators, not cementing properly or not getting rid of waste properly. With the earthquakes, it's not the fracking that's causing the quakes; it's wastewater disposal."

If fracking is not limited by severe regulations, Burnett said, shale plays such as the Bakken, Eagle Ford and Barnett, along with resources that have yet to be tapped, will provide plenty of supply well into the future.

"I don't think people realize the abundance the U.S. has in these plays," he said. "California has oil and gas plays out there in their shales that haven't been touched yet."