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The Obama administration’s endorsement last week of shale gas as a major pillar of its made-in-America energy vision ensures a long-term future for the resource.
The big question is: How does the North American sector survive today’s depressed market environment so it can deliver the 600,000 jobs and the economic stimulus expected from shale gas development?
For companies like Calgary-based Encana Corp., one of the top shale gas producers in the U.S., it comes down to short-term pain for long-term gain. “You will see less and less drilling for a period of time,” Eric Marsh, executive vice-president, natural gas economy and senior vice president, USA division, said in an interview.
“We continue to produce the gas we have on, and we wait for the day to ramp the rigs back up and get after it when the price gets to a point that investment will make sense.”
Despite concerns about the environmental impacts of shale gas, ranging from underground water contamination to chemical use, U.S. President Barack Obama effectively conveyed in his State of the Union speech: “We’ll work with it rather than against it.”
In other words, the U.S. sees shale gas as a major contributor to its goal of energy independence and will encourage its use even if fossil-fuel critics don’t like it, while adopting strict regulation to ensure it’s produced safely.
But the discovery of a century’s worth of shale gas on the continent has resulted in a glut in supplies that has sunk prices to the US$2.70 per thousand cubic feet range, far below the US$5 to US$7 level required in North America to produce the resource economically. Companies like Chesapeake Energy Corp. and ConocoPhillips are shutting in gas wells. Encana may announce similar plans when it gives its year-end results on Feb. 17.
Still, Mr. Marsh said measures announced by the U.S. last Friday to support natural gas use in transportation are good news for the sector.
They include: new incentives for medium- and heavy-duty trucks that run on natural gas or other alternative fuels, the development of transportation corridors for trucks fueled by liquefied natural gas; programs to convert municipal buses and trucks to run on natural gas.
More demand stimulus is expected from power generation, which is increasingly switching from coal to natural gas, as well as rising industrial demand.
For the rest of this article, please go to the National Post/Financial Post website: http://business.financialpost.com/2012/01/30/shale-gas-the-place-to-be/?__lsa=6dae8dea