Leslie Haines

Have I been dreaming? So many strange things are happening lately. Delta Airlines has bought a crude oil refinery in Pennsylvania to reduce the price and supply risks of its jet fuel. At first, people laughed and thought, short that stock. But on reflection, it starts to make sense, if properly managed.

Then too, a unit of Toyota recently paid $600 million to enter a joint venture in Canada's natural-gas-rich Horn River Basin, where there are plans to pipe gas to the coast and ship it to Asia. Might we see other end-users decide to buy direct ownership of resources? A chemical plant or fertilizer company could go beyond signing up for a dedicated supply, and instead enter into a JV with a natural gas producer—or take a nonoperated working interest—to fund drilling, thus locking up a proprietary supply for the long term. Why not?

This business model has been tried before, in the 1980s and 1990s, by a few gas utilities that acquired nonoperated interests in producing fields. Independent power producer Calpine tried it more recently. Eventually fed up with drilling risk, dry holes and being on the wrong side of volatile commodity prices, these end-users ended up selling their gas reserves later, too often at a loss.

Maybe this time it's different. If those who own power plants, natural-gas-vehicle fleets, and manufacturing are going to compete for gas from shale plays, maybe it's time they lock in a supply now, before it gets shipped out in a liquified natural gas tanker.

Another strange event: Argentina has nationalized YPF, ostensibly to punish it for not investing fast enough in the country's fields. If the government's intent is to incentivize international oil companies to invest capital and increase Argentine production, this move would seem to defeat the purpose.

These events are examples of why projections, as we all ruefully know, will eventually be proven wrong. They are wrong by magnitude, direction of the trend up or down, or timing—sometimes all three.

Nowhere is this more true than for oil and gas projections, whether for local or global supply, demand or fickle prices. Data are supposed to pinpoint trends and make projections, but there is no guarantee in the fast-changing world of energy.

A study just released from the University of Texas at San Antonio is a case in point. It finds that the Eagle Ford shale boom has already defied earlier projections. In 2011 alone, the play created more jobs—47,000 full-time ones—and delivered more to the area's economy—some $25 billion—than was projected to have occurred over the next 10 years! We are way ahead of the game there, and grateful to be so.

Oil production in the Eagle Ford increased sixfold in 2011, according to the Texas Railroad Commission.

Internationally, oil projections are merely a rough guide, interrupted by government actions, weather and war. Who predicted the rise in U.S. oil production would affect global markets? A report that crossed my desk recently posed a provocative question: Would Saudi Arabia someday have to back off its daily oil production to make way for surging North American oil output?

In the past few months, the Kingdom has been producing around 10 million barrels a day, an all-time high that has helped prevent the price of oil from further hitting a tenuous global economy.

And yet, this impressive production eats up any spare capacity, leaving traders with a sense of risk—that in turn buoys the price. Projections of the true size of Saudi spare capacity are the subject of much debate. No one really seems to have an accurate handle on it, or can prove (in the SEC sense of the word) how much leeway the world has.

More oil is being produced around the world than ever before—nearly 90 million barrels a day—to satisfy bigger demand each year. And yet at the same time, natural gas is taking a greater market share for energy.

It might even overtake oil as the preferred energy source in the U.S., according to a poll taken at last month's Offshore Technology Conference. In the poll, taken by GL Noble Denton, a technical adviser to the industry in over 80 countries, 56% of respondents attending OTC said natural gas will replace oil, to become the country's main source of energy by 2030. That's a stunning development.

Less than half, or 44%, think oil will remain the dominant fuel source by then. "The American unconventional gas market is rapidly changing the local energy landscape. Shale gas accounted for barely 2% of U.S. natural gas production a decade ago. Today it is approaching 30% and rising," said Pekka Paasivaara, a member of GL Group's executive board.

This brings us back to discussing ways to use all this natural gas. We are only beginning to understand the economic implications of the changes we need to make.