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Age of gas seen as sideshow as producers look to oil

ISAAC ARNSDORF

NEW YORK (Bloomberg) -- The “golden age of gas” that the International Energy Agency foresees as a result of the U.S. energy boom is hardly the future being embraced by industry executives.

At least based on comments from company officials presenting at the Independent Petroleum Association of America’s conference in New York yesterday. For them, oil is still the prize. Gas is almost an afterthought.

Abraxas Petroleum Corp. CEO Bob Watson boasted about how much of his company’s proved reserves are oil and liquids rather than gas (74%). PDC Energy Inc. said it’s sitting on huge leases in gas fields that aren’t worth drilling. Whiting Petroleum Corp. Chairman and CEO James Volker explained why: oil sells for three times as much as the equivalent amount of natural gas.

That’s no knock against the producers for chasing oil -- the commodity that makes the best return for their shareholders. Still, at a time when President Barack Obama is saying natural gas will be a bridge for the U.S. economy from fossil fuels to clean energy, the industry’s views put some realism into the discussion about what energy resources get unlocked by fracing shale rocks.

U.S. natural gas futures have plunged 72% from their 2005 peak to $4.476 as supply expanded to a record. Even after the coldest winter in decades drained stockpiles, the fuel costs about half as much as in Europe. Crude oil, by contrast, is stuck at around $100 a barrel. Even as the growth of U.S. oil supplies has brought the domestic price below the international benchmark, it’s still 7.6% higher than a year ago.

The U.S. is still very much addicted to oil. Consumption will inch up to 19 MMbbl a day this year, more than Europe and China combined, the IEA estimates. Even as expanding domestic supplies reduce imports, they haven’t curbed reliance on oil outright.

If natural gas is to be a bridge fuel, the transition can’t depend on supply alone.

Now that natural gas is so abundant, it needs more uses. While power plants are switching to gas, the U.S. still gets more electricity from coal.

Billionaire T. Boone Pickens wants trucks and buses to run on natural gas. The chemical industry is investing more than $100 bn in expansion projects spurred by cheap shale gas, according to the American Chemistry Council in Washington. And the Energy Department has approved seven projects to export about 9.3 Bcf a day of natural gas in liquid form.

In the time it takes for those new demand sources to develop, making natural gas more valuable in its own right, its role as a byproduct of oil drilling is contributing to more pollution. In North Dakota, drillers pumping oil in the Bakken shale formation are burning off about $1.4 million worth of natural gas every day.

While politicians and industry may pay lip service to natural gas as the clean fuel of the future, the companies out exploiting America’s oil fields leave no doubt that they’re interested in the same fuel as 100 years ago.

04/08/2014

 

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