It’s time to build U.S. Gas Trust. But that’s not some new Btu-backed financial entity. No. I mean emotional trust. We need to restore end-users’ and policymakers’ trust in natural gas as part of the energy solution. Gas is the right fuel. It can deliver for a long time to come.

“It is American, and with the geopolitical structure that exists in this world, that is a major benefit. It is clean. It does create jobs. So, what’s happened? People aren’t hearing about it. And if they are hearing about it, they don’t believe it,” said Regina Hopper at the Tipro annual meeting in Houston recently. Hopper is the new president and CEO of America’s Natural Gas Alliance (ANGA).

“We need to communicate very effectively that this is a clean American product. It is available right now. That is something that has not been communicated. It is available right now. But the White House isn’t hearing it. We watched President Obama speak at the Business Roundtable recently. He talked about coal. He talked about nuclear. Solar. Wind.

“Nope. Not gas. That tells you that this is an administration that will listen to what we have said, but will not act on it. We have to find out why and address that.”

This could be a case of the left hand not knowing what the right hand’s doing. Just two weeks later, no less than Energy Secretary Steven Chu and White House economic advisor Larry Summers both mentioned natural gas as being part of the energy mix, while speaking at the 29th annual CERAWeek, hosted by IHS CERA. Maybe they were prepped well by IHS CERA. Or, if they believe in natural gas at all, they need to press Obama on it.

But, beware the obstacles in our way.

Wasn’t it just four years ago that we worried about natural gas supply? Companies were drilling more natural gas wells than ever before, the gas-oriented rig count was soaring as a percent of the whole, and yet, U.S. production flatlined quarter after quarter. Remember the waterfall charts showing vintaged gas declines getting worse?

Utilities, meanwhile, noted that discouraging trend and decided to forego indigenous natural gas as a feedstock. Remember the frenzy when Fed chairman Alan Greenspan touted liquefied natural gas before Congress?

Utilities also took to ordering more coal-fired power plants. Independent power producers such as Calpine, which promised to supply power from their spanking new gas-fired plants, ended up in financial disarray, operating at less than 100% capacity.

Today, the situation has flip-flopped dramatically. More than 100 coal-fired power plants have been cancelled or delayed due to environmental, cost and permitting issues—not to mention fear of a cap-and-trade scheme that could make such plants uneconomic.

More important, along came the shale plays, and with them, 10-, 20-, and 30-stage fracs. This is a game-changer that forces everyone in the supply chain to reevaluate the present and future. At CERAWeek, IHS CERA released its comprehensive report on unconventional natural gas. By 2035, it said, shale gas could be 50% of U.S. gas supply. Power-generation use could double to 35 billion cubic feet a day—and that’s not counting what automobiles may be using.

Nearer-term, E&P companies will have to adapt, especially if the natural gas strip on Nymex remains low. And yet, estimates from Wall Street and the E&P companies themselves show that most shale plays are economic at $4 to $5 gas. A well might pay out, but is the return on capital employed enough, and above the cost of capital? Bernstein research analyst Ben Dell says the companies’ 2009 10-Ks show a different truth.

The next change on the horizon is in what motivates E&P companies. No longer will they drill beyond cash flow, in order to defend three-year leases taken during the expensive land grab of 2007 and 2008.
Going forward, companies will transition to discretionary drilling based on economics and infrastructure, Petrohawk Energy Corp. chief operating officer Dick Stoneburner said at CERAWeek. “What is the right pace of development as we approach having discretionary budgets, to stay cash-flow positive and hold leases?”

The changing nature of resource potential, as measured by proved undeveloped reserves (PUDs), may also puzzle government and consumers. Do they understand reserves? For example, NGAS Resources Inc. said its estimated proved reserves at year-end 2009 were 78.4 billion cubic feet equivalent. Under the SEC’s new mandate to use 12-month average prices, NGAS used $4.25 per thousand cubic feet (Mcf) to calculate reserves.

But under the SEC’s old method, using year-end pricing instead, NGAS would have reported almost twice the proved, or 134.7 billion equivalent, the company said.