What about natural gas in storage?            Return  

Recently we saw an industry gas production survey which showed that the quantity of gas produced during 2003 was 2% less than the quantity of gas produced during 2002. This same decline was evident from 2003 to 2004. The sampling represented about 60% of the U.S. producers and was adjusted for mergers and acquisitions. The producers who were questioned were generally Chesapeake, Dominion, Devon and larger producers. The remainder of the sampling not included was primarily smaller producers such as Ranken Energy. We are a small producer and were not polled by the people doing the sampling, yet Ranken, at least, increased our gas production over the last few years. 

Simple logic would say that while this group likely increased their cash flow from higher commodity pricing, (as Ranken did) they lack the necessary access to financial capital to expand beyond their area of local expertise. While the extra cash flow generated allows us to more quickly repay our industry partners, as a collective group the increased production will ultimately be insufficient for the country. 

This leads to only one conclusion from this information. At a price level of $5/MMBtu, there is insufficient capital to maintain, not to mention increase, U.S. domestic gas supply. With the normal price for gas at $8 or $9/MMBtu there are economic prospects to go after, but we are already on the “hamster wheel” needing to drill faster and faster, simply to stay even with gas production and the decline of domestic gas reserves.

Another issue in this scenario is the availability of drill rigs and the crews to man them. The companies that provide the drill rigs have suffered through twenty years of depressed markets. (Click for histogram.) The people working for them who were trained in working with heavy equipment were laid off and have found other work. The drilling equipment can be manufactured over time but qualified personnel willing to work in the harsh conditions will remain in short supply.

The end game in this scenario involves gas prices rising ever higher until LNG infrastructure is in place to meet the marginal demand through the import of cheaper foreign supply. With the bureaucratic way in which these projects get approved, we at Ranken view this as a distant if ever attainable solution.

If you would like additional information, please contact us at the address, phone numbers or email address on our Contact page.

 Return