The Desk
The sky is the limit, for now

Monday, February 07, 2011

Bentek’s latest Market Alert on the state of the various shale plays might have caused us to short our solar and wind plays, if in fact we had wind and solar plays to short. We don’t. But, we would have. Bentek’s Rocco Canonica this week served up 30- odd pages of detailed analysis on the path forward through 2015. What’s ahead? Lots. Like, more of everything, plus some looming pipeline and storage infrastructure constraints, and, quite possibly some new price sensitivity – maybe around the time that five-year lease is up on your new Beemer.

“The Sky Is the Limit? U.S. Shale Gas Soars!” Market Alert was released to Bentek customers this week, and you can buy your own copy on the company site. It’s a good read; we recommend it. What follows are some choice bits from the new report.

Bentek expects record-high storage levels and sub-$3 Henry Hub gas prices by Fall 2011 given demand projections based on normal weather. Under the base-case forecast, working gas in storage reaches 4 Tcf by the end of October, just shy of estimated peak capacity (about 4.1 Tcf). With storage this high, prices will decline, prompting price-responsive demand gains. Those gains in the power and industrial sectors are expected to raise the market’s price floor, but prices will be weak relative to historical averages.

The base-case forecast of US gas production growth in 2011 shows 5 percent growth. Bentek expects market conditions, upcoming operational issues and low prices to send the production industry a signal to put on the brakes and adjust drilling and production plans. A number of other factors also could help slow down the pace of growth. The wind-down of HBP drilling during 2011 should take pressure off the supply imbalance, but expiring HBP obligations also will allow operators to shift rigs away from peripheral HBP leases and concentrate activity in the sweet spots, i.e., high-Btu gas plays) in order to increase margins in a low-price environment. While rig counts may fall due to changing HBP drilling and production requirements, production may remain relatively flat or grow in some key basins as producers focus on these sweet spots and work through an inventory of non-completed wells.

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