Last year, natural gas at Henry Hub averaged $7.17 per million Btu. That’s not bad when you consider that U.S. storage held above the five-year average, the weather was mild, and some manufacturing plants that use gas were shut down.


More gas is coming onstream every day. The latest data from the Department of Energy shows Lower 48 daily gas production rose by 3 billion cubic feet (Bcf) between November 2006 and November 2007, with 2.4 Bcf of that incremental production coming from Texas. Devon Energy’s Barnett shale production rose 33% last year to end 2007 at 950 million cubic feet per day. The company drilled 539 Barnett wells last year.


Chesapeake reportedly has 1,000 landmen working the Fort Worth Basin alone, and it boasts an inventory of 36,300 drilling locations on its 13 million net acres across the U.S.


What will gas prices average this year?


Tristone Capital’s quarterly survey of 45 energy lenders indicates an average of $6.44 per million Btu. The energy team at Calyon Securities says $7.50. Morgan Stanley says $8. Deutsche Bank says $8.50. Usually more bullish than most, Raymond James’ E&P analysts say only $6.50.


They may have a point because we may be inundated with more gas in 2008. More shale gas is coming from a number of plays. New pipelines serving the Rockies, the Barnett and ArkLaTex regions are coming online in 2008, enabling producers to really get cranking.


This is not to mention that two new Gulf Coast regasification terminals for liquefied natural gas (LNG) open soon, with a combined 4.3 Bcf of daily send-out capacity. Cheniere Energy’s Sabine Pass LNG terminal opens in April; Freeport LNG’s plant follows in May.


I recently toured Cheniere’s plant on the Louisiana side of Sabine Pass, about 3.5 miles inland. Three enormous LNG storage tanks are ready for the first shipment to arrive and two more are under construction for Phase 2 at the massive site.
The oil and gas industry has always been accused of doing too much of a good thing. If 100 wells work in a play, then 200 must be better, assuming the geology allows it and commodity prices play along.


True, the executives who are running E&P companies today are disciplined in their approach to drilling. They have the science. They know what their target rate of return needs to be. They have long memories about that stubborn gas-supply bubble in the 1980s, the one that ended up shaped like a sausage, it lasted so long.


But discipline or no, it’s hard to pass up a burgeoning play where you can find 2 or 3 Bcf for $2- or $3 million per well. And so, we see more and more E&P companies hopping on the shale bandwagon. The number of gas-oriented prospects being shown at NAPE always appear to outnumber the oil concepts by 100 to one.


We honor Contango Oil & Gas Co. this month for Best Discovery in 2007, for its Dutch and Mary Rose wells offshore Louisiana. The company will publicly say it has found at least 572 Bcf equivalent in proved and probable reserves, but observers think there could be more gas than that. It is one of the largest finds on the mature Gulf of Mexico shelf in many years.


McMoRan Exploration is also sitting on that much gas, or more, at its Ship Shoal development called Flatrock offshore Louisiana. Farther offshore, the Independence Hub in the eastern Gulf is now up and running, producing 1 Bcf a day.
The results are good for us all—U.S. gas production is up year-over-year. Gas is regarded as a better fuel for the environment and the green movement than oil or coal or nuclear.


What about LNG’s affect on pricing?


“We disagree with the widespread view that LNG will smooth pricing in North America,” warns Morgan Stanley analyst Lloyd Byrne.


“Growing import dependency will be addressed by LNG imports in 2008-12. However, we see potential for seasonal supply/demand dislocations as the world LNG market grows. North America is the world’s call on natural gas storage.
“This suggests that, during periods of imbalance (i.e., warm winters, cold summers), Nymex may bear the brunt of global natural gas volatility. We expect this risk to peak in summer 2009 and 2010 and would recommend more active hedging as a result.”


?Meanwhile, at press time in Palm Beach County, Florida, some 27 environmental activists were arrested after they blocked access to Florida Power & Light’s construction site for a gas-fired power plant. The confrontation took place “to protect the Loxahatchee National Wildlife Refuge which sits 1,000 feet from the power plant site,” according to the protestors’ press release.


We knew construction of coal-fired plants was being opposed, delayed or canceled around the country, but this is the first time I’ve heard that new gas-fired plants also could be in jeopardy.


Ironic, inasmuch as protecting wildlife seems to require that the U.S. use more natural gas, not less.