Natural gas prices fall as shale yields bounty

HOUSTON — American natural-gas production is rising at a clip not seen in half a century, pushing down prices of the fuel and reversing conventional wisdom that domestic gas fields were in irreversible decline.

The new drilling boom uses advanced technology to release gas trapped in huge shale beds found throughout North America — gas long believed to be out of reach. Natural gas is the cleanest fossil fuel, releasing less of the emissions that cause global warming than coal or oil.

Rising production of natural gas has significant long-range implications for American consumers and businesses. A sustained increase in gas supplies over the next decade could slow the rise of utility bills, obviate the need to import gas and make energy-intensive industries more competitive.

While the recent production increase is indisputable, not everyone is convinced the additional supplies can last for decades. "The jury is still out how big shale is going to be," said Robert Ineson, a natural-gas analyst at Cambridge Energy Research Associates, a consulting firm.

Still, many people in the natural-gas industry believe a new era is at hand, and a rising chorus of Wall Street analysts and congressional lawmakers supports that notion. Competition among companies for rights to the new gas has set off a frenzy of leasing and drilling.

Domestic gas production was up 8.8 percent in the first five months of this year compared with the period a year earlier, a rate of increase last seen in 1959, during the great drilling boom that followed World War II.

Most of the gain is coming from shale, particularly the Barnett Shale region around Fort Worth, Texas, which has been under development for several years. The increase in gas production stands in sharp contrast to the trend in domestic oil production, which has been declining steadily since 1970 and dropped 21 percent in the past decade alone.

The Barnett region proved that, using new technology, shale gas could be extracted on a large scale. But lately companies have set their sights on shale formations that could produce far more gas than the Barnett.

Supply may last decades

Testing to determine the productivity of fields has been completed on just a tiny fraction of the potential acreage. According to a new report by Navigant Consulting, paid for by a foundation allied with the gas industry, there could be as much as 842 trillion cubic feet of retrievable gas in shales around the country, enough to supply about 40 years' worth of natural gas at today's consumption rate. But thousands of wells need to be drilled before the exact reserves will be known.

Domestic natural-gas prices already have plunged 42 percent since early July, an even faster drop in price than oil or most other commodities, in part because the rapid supply growth has begun to influence the market.

Puget Sound Energy, Washington state's largest utility, last week announced it will ask the state Utilities and Transportation Commission for a smaller rate increase than it originally intended. The higher rate is expected to amount to a 5 percent monthly increase (or $4.15 more a month) for the average natural-gas customer. If approved, the rate increase would go into effect Nov. 1.

Price spikes remain possible, of course, but throughout the industry the shale discoveries are causing a shift in thinking about the long-term outlook.

Black or brown shales are a type of sedimentary rock, high in organic matter, found beneath millions of acres in at least 23 states. The rock has been known for more than a century to contain gas, but it was considered virtually worthless until a decade ago because typical wells on such sites would produce gas briefly and then die.

New horizontal wells

Now, companies are drilling long, horizontal wells and pumping in water to fracture the rock, releasing vastly more gas than could the vertical wells of old.

The Barnett was the first shale field to undergo major development, and gas production has gone up tenfold since 2001, so much that it now produces 7 percent of the nation's supply of natural gas. At least two other shale formations, the Haynesville in Louisiana and Texas, and the Marcellus in Appalachia, are believed to be even larger, though substantial production in those will take another two to five years.

Prospectors have identified at least two dozen shale beds in North America that could contain large amounts of gas.

"Shale is the most significant domestic natural-gas find in 50 years," said Chris Ruppel, an analyst at the institutional brokerage firm Execution, "which means the United States will become gas independent and more industrially competitive versus Europe for gas-intensive industries such as chemicals, fertilizer, smelting iron and aluminum."

As the frenzy unfolds, some energy experts urge caution in projecting how big the new supplies will be and whether they will alleviate the loss in productivity of conventional wells, particularly those in the Gulf of Mexico.

The Energy Department's 2008 estimates for shale gas reserves that may one day be economically produced stand at 125 trillion cubic feet, about a seventh of the most optimistic industry estimates.

Jeffrey Little, a department gas analyst, said the government estimate was based on 2006 data and could increase after further testing.

Information from The Seattle Times archives was used in this story.