"Where are we today?" In answering that, John Olson, the acclaimed, 35-year oil and gas analyst who is now a private investor, was reminded recently of visiting an oil and gas producer 25 years ago in Dallas. "We had been in a gas bubble for five or six years at the time. He wanted to know what to do. I said, 'Maybe you should consider never drilling another natural gas well.'"

After some consideration, the producer said to him, "You know, I've been drilling natural gas wells for 58 years and I can't stop."

Olson, who moderated the roundtable conversation "Natural Gas: A Conundrum for Some; An Arb Opportunity for Others" at Oil and Gas Investor's 5th annual Energy Capital Conference in early June, says history is repeating itself right now, thanks to horizontal drilling and multistage fracturing in shale plays.

"We have massively cycled up the volume of natural gas (production) at the same time we have massively cycled down the price structure for natural gas. And it is, accordingly, a very difficult time to think about natural gas, but it is also a great time to think about the permutations. We have for, the last five years, seen a lot of bets go south in the natural gas business."

He was also reminded of an observation former EOG Resources Inc. chairman Forrest Hoglund made a few decades ago: In the natural gas business, there are seven years of fat and seven years of lean. "What year are we in now, Forrest?" Olson asked Hoglund, a panelist in Olson's gas roundtable conversation.

Hoglund replied, "I'd say we're in our third or fourth year of lean."

After serving as non-executive chairman of Forest Oil Corp. upon departing from EOG after its spinout from Enron Corp., Hoglund is now chairman and chief executive officer of SeaOne Maritime Corp., which owns liquefied natural gas (LNG) technology that requires less refrigeration and pressure, in part by including 15% to 18% propane in the mix. The phonetic spelling of SeaOne is "C1," which is methane, Hoglund noted, and its technology can be thought of as "LNG Lite."

Working to create greater demand for U.S. natural gas—for which supply has already outstripped demand as a result of shale-play development and yet more supply is possible upon resumption of economic drilling—is Chesapeake Energy Corp., including through its Chesapeake NG Ventures Corp. (CNGV).

Kent Wilkinson, vice president of the CNGV business unit, noted it has invested in Clean Energy Fuels Corp., which builds compressed natural gas (CNG) filling stations; in SunDrop Fuels Inc., which is working to create synthetic gas at a lower capital cost; and, with 3M Co., to lower the cost and increase the performance of CNG tanks.

In response to one attendee's question, Bill Cooper, president of the Washington, D.C.-based Center for Liquefied Natural Gas, warned against gas-industry supporters asking for federal subsidies for construction of U.S. CNG filling stations and other infrastructure to increase use of natural gas as a transportation fuel.

"There seems to be excitement around…trying to kick-start it with government subsidies," Cooper said. "But we have to be careful because, as an industry, we generally like to say, 'Let the market decide.' We generally like to say, 'We need to cut (regulation and let us) do our jobs.'"

The industry hasn't favored subsidies of ethanol, wind, solar and other fuels, he noted. "So we need to be very careful here when we come to the table and say, 'Give us a subsidy.' I think the best approach is to let the market take its own course. Typically, the government doesn't do a good job when it tries to accelerate the process."

Wilkinson said states are taking a greater initiative in encouraging use of natural gas in transportation. "It is highly unlikely to see traction out of the federal government to do much of anything." Instead, Oklahoma, Louisiana and West Virginia are considering ways to facilitate and expedite constituents' movement to natural gas in transportation. In Oklahoma City, for example, the home of Chesapeake's headquarters, "there are several places where we can fill up with CNG today a half-mile from our office at $1.59-a-gallon gasoline equivalent."

States have taken notice of economic benefits of natural gas as a transportation fuel. "It's $3.90 a gallon (of gasoline) or $1.60 (of natural gas)," Wilkinson said. In terms of price competitiveness with gasoline, Wilkinson added, "you could triple (natural gas) prices and you've added 60 cents (to the CNG pump price)."

As for gas-to-liquids technology, Wilkinson said Chesapeake has looked at this intensely. "At $2.50 natural gas, a lot of things make sense."

And, at what U.S. natural gas price would LNG exports be uneconomic? Cooper said, "It's not totally a function of price. From the regulatory perspective, it's a function of domestic need." In a conversation in Washington recently, he and colleagues were saying that, "if you have 9% unemployment and the economy is in the tank and $2 (natural) gas, that's not a good picture. If you have 4% unemployment and an economy that is growing in double digits, $6 doesn't look all that bad.

"It's all relative and I would hope the DOE (Department of Energy) would not ever attempt to just try to put a price (on where it would or would not allow U.S. gas exports)."

The Center for LNG's membership consists of 13 existing LNG importers and three energy-industry associations. To date, the DOE has approved one LNG export application for both export to Free Trade Agreement countries—which mostly include consumers that don't need gas, such as Australia, or have nearby sources, such as Morocco—and to any country with which the U.S. does not prohibit trade. That permit—issued to Cheniere Energy Inc.'s Sabine Pass Liquefaction LLC—is for exporting 2.2 billion cubic feet (Bcf) a day, which is planned at its existing LNG import facility in Cameron Parish, Louisiana.

Among all applications, various existing LNG importers and new entrants to U.S. LNG hope to export more than 18 Bcf a day, Cooper noted. "Not all of those applied for undoubtedly will be permitted. Not all of those permitted will undoubtedly be built. It remains to be seen which ones get built."

Might the DOE reconsider its policy that U.S. natural gas may be exported? Massachusetts Congressman Ed Markey asked Energy Secretary Steven Chu that recently, to which the DOE replied, as Cooper paraphrased, that it has no intention of using the Natural Gas Act and its authority "as a price-maintenance mechanism…except in the event of extraordinary circumstances."

Should circumstances change, prohibiting export—after permission is granted—would prompt a series of hearings and other time-consuming processes, Cooper said. "You're not going to do that when the New York City Gate price spikes to $20 and then it's right back down again. It has to be a long-term fundamental shift in the market (for the DOE to open hearings)."

Hoglund noted that U.S. gas producers and buyers are advantaged by plentiful gas storage in the Lower 48. "We have the technology to be able to take gas out and liquefy it or, when we're short, put it back in…A lot of places don't have the luxury we have and that is good storage."

Olson reminded attendees, however, that, "from an equity investor point of view, all we've been doing in building gas storage is building character, which is not exactly what you want to do on Wall Street." It's a problem of arbitrage or the lack thereof. "It's a very tough time to be in storage at this point, especially given the fact that natural gas normally moves the shortest distance to the highest net-back."

In the Marcellus shale play, gas wells are waiting to come online. Those waiting for completion alone represent an additional 1 Bcf of daily supply, he said. Meanwhile, the play is in the U.S. Northeast, which is the highest-priced U.S. gas market. "(More) Gulf Coast salt-dome storage isn't going to make it in my opinion."