By BEN CASSELMAN, Wall Street Journal

CADDO PARISH, La. — A massive natural-gas discovery here in northern Louisiana heralds a big shift in the nation’s energy landscape. After an era of declining production, the U.S. is now swimming in natural gas.

Even conservative estimates suggest the Louisiana discovery — known as the Haynesville Shale, for the dense rock formation that contains the gas — could hold some 200 trillion cubic feet of natural gas. That’s the equivalent of 33 billion barrels of oil, or 18 years’ worth of current U.S. oil production. Some industry executives think the field could be several times that size.

“There’s no dry hole here,” says Joan Dunlap, vice president of Petrohawk Energy Corp., standing beside a drilling rig near a former Shreveport amusement park.

Huge new fields also have been found in Texas, Arkansas and Pennsylvania. One industry-backed study estimates the U.S. has more than 2,200 trillion cubic feet of gas waiting to be pumped, enough to satisfy nearly 100 years of current U.S. natural-gas demand.

The discoveries have spurred energy experts and policy makers to start looking to natural gas in their pursuit of a wide range of goals: easing the impact of energy-price spikes, reducing dependence on foreign oil, lowering “greenhouse gas” emissions and speeding the transition to renewable fuels.

A climate-change bill being pushed by President Barack Obama could boost reliance on natural gas. The bill, which could emerge from the House Energy and Commerce Committee in May, is expected to set aggressive targets for reducing emissions of carbon dioxide, the most prevalent man-made greenhouse gas.

Meeting such goals would require quickly moving away from coal-fired power plants, which account for substantial carbon emissions. President Obama wants the U.S. to rely more on renewable energy such as wind and solar power, but those technologies aren’t ready to shoulder more than a fraction of the nation’s energy burden. Advocates for natural gas argue that the fuel, which is cleaner than coal, would be a logical quick fix. In addition, billionaire energy investor T. Boone Pickens has been touting natural gas as an alternative to gasoline and diesel for cars and trucks.

“The availability of natural-gas generation enables us to be much more courageous in charting a transition to a low-carbon economy,” says Jason Grumet, executive director of the National Commission on Energy Policy, who was a senior adviser to President Obama during the campaign.

Just three years ago, the conventional wisdom was that U.S. natural-gas production was facing permanent decline. U.S. policy makers were resigned to the idea that the country would have to rely more on foreign imports to supply the fuel that heats half of American homes, generates one-fifth of the nation’s electricity, and is a key component in plastics, chemicals and fertilizer.

But new technologies and a drilling boom have helped production rise 11% in the past two years. Now there’s a glut, which has driven prices down to a six-year low and prompted producers to temporarily cut back drilling and search for new demand.

The natural-gas discoveries come as oil has become harder to find and more expensive to produce. The U.S. is increasingly reliant on supplies imported from the Middle East and other politically unstable regions. In contrast, 98% of the natural gas consumed in the U.S. is produced in North America.

Coal remains plentiful in the U.S., but is likely to face new restrictions. To produce the same amount of energy, burning gas emits about half as much carbon dioxide as burning coal.

Natural gas has never played more than a supporting role in the nation’s energy supply. Crude oil, refined into gasoline or diesel, fuels nearly all U.S. cars or trucks. Coal is the dominant fuel for generating electricity.

Natural-gas production in the U.S. peaked in the early 1970s, then fell for a decade due to weak prices and declining gas fields in Texas, Louisiana and elsewhere. Production bounced back in the 1990s with the discovery of new fields in New Mexico and Wyoming, but by 2002, output was falling again — this time, most experts thought, for good. Believing the U.S. would soon need to import liquefied natural gas from overseas, companies such as ConocoPhillips, El Paso Corp. and Cheniere Energy Inc. spent billions on terminals, pipelines and storage facilities.

The supply fears drove up prices, which spurred innovation. Oil-and-gas companies had known for decades that there was gas trapped in shale, a nonporous rock common in much of the U.S. but considered too dense to produce much gas.

In the 1980s, Texas oilman George Mitchell began trying to produce gas from a formation near Fort Worth, Texas, known as the Barnett Shale. He pumped millions of gallons of water at high pressure down the well, cracking open the rock and allowing gas to flow to the surface.

Oklahoma City-based Devon Energy Corp. bought Mr. Mitchell’s company in 2002. It combined his methods with a technique for drilling straight down to gas-bearing rock, then turning horizontally to stay within the formation. Devon’s first horizontal wells produced about three times as much gas as traditional vertical wells.

The development of the Barnett Shale almost single-handedly reversed the decline in U.S. natural-gas production. Last year, the Barnett produced four billion cubic feet of gas a day, making it the largest field in the U.S. Other companies such as Newfield Exploration Co., Southwestern Energy Co. and Range Resources Corp. found shale fields across the U.S.

One of the most aggressive companies was Oklahoma City-based Chesapeake Energy Corp., which got into the Barnett a couple of years behind cross-town rival Devon, and was an early entrant into the second big U.S. field, the Fayetteville Shale in Arkansas. In 2005, Chesapeake Chief Executive Aubrey McClendon sent teams of geologists across the country with a mission: Find the next Barnett. Less than two years later, they told him they had it, in Louisiana.

The Haynesville Shale is centered in northern Louisiana, one of the country’s oldest oil- and gas-producing regions. Wildcatters had explored beneath the lush cow pastures and cotton fields as far back as the 1870s. Shreveport, the region’s largest city, saw decades of booms and busts until the 1980s, when a glut of cheap oil from overseas all but killed the region’s oil industry.

Oil companies knew about the Haynesville Shale, but it was considered a less viable prospect than the Barnett. The shale lies 10,000 or more feet below ground, where high pressure and 300-degree temperatures are enough to fry high-tech drilling equipment.

But in 2006, Chesapeake drilled an exploratory well and decided the results were promising enough to justify the higher cost of drilling in such harsh conditions. By late 2007, Mr. McClendon says, “we knew that we had a tiger by the tail.”

In March 2008, as oil and gas prices were soaring, Chesapeake went public with its findings. The rush was on: Dozens of companies dispatched agents to the area to lease land for drilling, turning farmers and ranchers into millionaires overnight.

“There was excitement in the air,” recalls Jeffrey Wellborn, a Shreveport resident who sits on the board of the local Sierra Club. “You thought everyone in the world had won the lottery.”

The frenzy marked the peak of a nationwide drilling boom that was fueled by a combination of soaring energy prices and easy credit. It didn’t last. Between July and October, oil and gas prices fell by more than 50%, and kept falling.

The weakening economy eroded demand for both oil and gas. Natural gas, unlike oil, suffered from a supply glut. U.S. gas production rose 7.2% last year, while oil production fell 1.9%. As a result, oil prices are up 12% since the start of 2009. Natural-gas prices have fallen 41% to their lowest since 2002.

Gas producers saw their profits evaporate and share prices slump. Liquefied-natural-gas imports plunged, leaving import terminals nearly idle. Worried about a glut, companies cut back sharply on drilling and formed a lobbying group to try to boost demand.

The growing supply created opportunities for policy makers and environmentalists, who saw natural gas as a possible solution to the nation’s energy problems. Some groups suggested burning more gas and less coal for power generation. Others favor its use in vehicles.

Mr. Pickens has spent millions promoting an energy plan that aims to, among other things, convert thousands of big-rig trucks to run on natural gas. Mr. Pickens has large investments in natural gas and stands to benefit if his plan is adopted. In TV ads, Internet videos and speeches, he emphasizes a different goal: reducing U.S. dependence on foreign oil.

Mr. Pickens arrived for a recent speech in Dallas in a natural-gas-fueled Honda Civic with a bright blue “Pickens Plan” logo. He told a packed auditorium that the U.S. is importing two-thirds of its oil even as the country is “absolutely overwhelmed with natural gas.” If the reverse were true, he said, he would favor burning oil.

Some environmentalists have embraced Mr. Pickens’s plan as a way to fight climate change. Carl Pope, executive director of the Sierra Club, says he sees natural gas as a “bridge fuel” that could help the U.S. burn less coal and oil until renewable sources of energy are ready to take over.

The dual message of energy security and environmental responsibility has helped Mr. Pickens win powerful allies, including Senate Majority Leader Harry Reid, House Speaker Nancy Pelosi and dozens of elected officials from both parties. A bipartisan bill providing tax incentives for natural-gas cars looks likely to pass this year.

Not everyone shares Mr. Pickens’s enthusiasm for natural-gas vehicles. Major users of natural gas, such as utilities and chemicals companies, are concerned the plan would drive up prices — an outcome that would benefit producers.

Energy Secretary Steven Chu and some other policy makers have expressed doubts about the practicality of retrofitting hundreds of thousands of service stations to offer natural gas. Some environmental groups, including the Natural Resources Defense Council, have argued that natural gas is better used to replace coal for power generation, and that cars should run on electricity generated by the sun, wind and natural gas.

Market forces are already helping natural gas make inroads against coal and oil. Gas is now cheaper than coal in many parts of the country, leading utilities to burn more gas. Of the 372 power plants expected to be built in the U.S. over the next three years, 206 will be fired by gas and just 31 by coal, according to the Energy Information Administration.

Natural gas is gaining market share far more slowly in transportation. Earlier this year, AT&T announced it would convert up to 20% of its truck fleet to run on natural gas, largely because it has been cheaper than gasoline in recent years. Cities including New York, Los Angeles and Atlanta have converted part of their bus fleets to run on natural gas, for air-quality reasons.

Shreveport could be the next city to make the switch. In March, Mayor Cedric Glover announced that the oil capital turned natural-gas boomtown would abandon diesel and convert its bus fleet to natural gas.

A federal auction of drilling tracts in the Gulf of Mexico slated for this summer in New Orleans could be postponed after a federal court rejected a five-year energy plan developed during the administration of former President George W. Bush.

In an April 17 ruling, the U.S. Court of Appeals for the District of Columbia Circuit said the administration failed to properly assess the environmental effects of expanding oil and gas development off the coast of Alaska. An Interior Department plan, which governs the auction of offshore drilling parcels from 2007 through 2012, would offer new areas in Alaska’s Beaufort, Bering and Chukchi seas.

The court remanded the entire drilling plan, which authorizes the summer auction in New Orleans, to the secretary of the interior “for reconsideration.”

The plan’s “environmental sensitivity rankings are irrational,” Chief Judge David Sentelle wrote in the court’s opinion. The ruling came in response to a lawsuit by environmental activists and Alaska’s Native Village tribe, which said the plan could exacerbate climate change and harm endangered species in Alaska.

Peter Schaumberg, a former interior attorney, said the decision could thwart future auctions, including Lease Sale 210, set for Aug. 19 in New Orleans.

“I think there is a significant chance that it will delay the next sale because the law requires a five-year plan to be in place before there are lease sales,” said Schaumberg, now with the Beveridge & Diamond law firm in Washington, D.C.

The Interior Department’s Minerals Management Service, which controls offshore drilling, has not revealed its intentions for the August sale.

“The decision is still being reviewed,” MMS spokeswoman Eileen Angelico wrote in an e-mail.

Schaumberg said he expected the Interior Department to approach the appeals court for further guidance or for permission to auction areas outside of Alaska.

“My sense was that the court didn’t consider the potential broader implications of the decision,” Schaumberg said. “It’s very possible that the parties will go in and modify that relief.”

Lease Sale 210, which covers about 18 million acres in the Western Gulf of Mexico, could result in the production of as much as 423 million barrels of oil and 2.64 trillion cubic feet of natural gas, according to the MMS.

Don Briggs, president of the Louisiana Oil and Gas Association, called the sale an important opportunity for the industry. After reaching record heights last summer, commodity prices have crashed under the weight of the poor economy.

Canceling any drilling auctions “will continue to grow our dependence on foreign sources for energy,” Briggs said.

Briggs expressed doubt that Interior Secretary Ken Salazar would see the matter in the same light.

Salazar has already postponed the adoption of another Bush-era plan that would govern offshore drilling through 2015, saying he wants time to develop a “comprehensive approach” to offshore energy.

Briggs and other critics interpreted the move as evidence of the Obama administration’s disdain for the oil and gas industry. Obama’s call to develop renewable energy sources and his proposal to increase taxes for oil and gas companies have also drawn jeers from the industry.

“They are not a pro oil and gas administration,” Briggs said.

http://www.nola.com/business/t-p/index.ssf?/base/money-2/1241069718152300.xml&coll=1&thispage=2

By Don Briggs, LOGA President

The “oil rollercoaster” ride from $23 a barrel in 2002 followed by a six year climb to the record breaking peak of $147 a barrel in July of 2008 was like any rollercoaster ride, the ride to the top was slow and steady, the ride down to $35 a barrel was fast and steep. It took six and a half years for oil prices to climb to its peak and eight months to plunge 76% to $35 a barrel. If you’re riding the “natural gas rollercoaster” the climb and decent was similar, reaching a peak of $13 per thousand cubic feet and a 69% plunge to below $4.

The oil and natural gas industry is a price-driven industry. High prices equate to increased exploration, thousands of new high paying jobs, royalties for landowners, increased revenues for local and state governments and the development of new businesses and technologies.

Louisiana has experienced just that kind of growth for the past six years. We have been reluctant to call it a boom in fear of what we have experienced in past booms. It’s déjà vu all over again.

The boom is over. Oil and gas producers are cutting back their exploration budgets for the second and third time. Their revenues have crashed along with oil and gas prices, and their capital lender markets have disappeared along with the world economic meltdown. Publically traded oil and gas company stocks have declined in value to unprecedented lows.

“When everybody sobers up after the first quarter and sees what their real cash flow is going to be,” said G. Steven Farris, chief executive of energy company Apache, “people are going to be very discouraged about how much capital they have to spend and that will depress the rig count even further.”

The US rig count is down 37% from this time a year ago to 1,126 active drilling rigs and down 45% from the mid summer peak of 2031 rigs. Louisiana’s active rig count, as of this past week, is 137 rigs, down 4% from 143 rigs this time a year ago.

Louisiana’s mere 4% decline is the lowest in the US among the major oil and natural gas producing states. Texas is down 48%, and Oklahoma is down 46%.

Louisiana Active Rigs	Mar 13 2009	Mar 14 2008
N Louisiana – Land	71	46
S Louisiana – Land	18	29
S Louisiana – INL Water	6	17
S Louisiana – Offshore	42	51
Total Louisiana	137	143

If there is an oil and gas boom going on anywhere in the US it’s in North Louisiana in the Haynesville Shale. Though drilling activity has declined from a peak of 95 rigs just a few months ago to 71 rigs today, activity in NW Louisiana appears to be holding up. Natural Gas companies drilling in “Resource Plays” in other parts of the US, such as the Barnett Shale in Texas, and the Marcellus in the North East, have cut their drilling budgets in those areas but are continuing to explore the Haynesville Shale.

“The big bonanza is over,” said Jay Ewing, the completion and construction manager for Devon Energy in the Barnett Shale field. So far this year his company has brought its rig count from 35 to 8 in the Barnett. “Everyone is really shocked how fast everything has turned.”

Activity in South Louisiana is a different story. South Louisiana land drilling activity has declined by 38% keeping in proximity of the national decline percentage of 37%.

The South Louisiana Inland Water drilling barge activity however is significantly lower with a decline of 65% from a year ago and 77% down from the peak of 26 active drilling barges just 7 to 8 months ago. Inland drilling contractors have laid off nearly 1,000 employees in recent months adjusting to the decline in activity.

Drilling for oil and gas in the inland and coastal waters of Louisiana is capital intensive and comes with considerable dry hole risk. Hurricanes in the past few years have caused insurance cost to escalate to near prohibitive rates in some areas. Regardless of the risk and cost, the inland waters still remain an area for the future exploration and development of deep natural gas.

Rig activity in South Louisiana Gulf of Mexico (GOM) continues on a gradual 20% decline from the peak in 2000. A decade ago low prices caused companies to let idle leases expire while they pursued projects in other parts of the globe. The companies are now coming back to bid on expired leases to develop. The finding cost for a barrel of oil in the GOM is the most expensive in the entire world, according to a study conducted in 2006. However, due to the shaky geopolitics around the world, Western oil and gas companies will move back to the GOM to exploit the vast reserves estimated to exist in the GOM.

According to the Energy Information Agency (EIA) 59% of the undiscovered technically recoverable oil and 56% of the undiscovered technically recoverable natural gas in the US Outer Continental Shelf (OCS) is in the GOM.

Important to Acadiana is that exploration and production activity in the GOM will continue. The price/activity scenario does not necessarily apply to all exploration activity in the Gulf of Mexico, especially in the deep water. Exploration projects in the deepwater are developed and planned over a period of 15 to 20 years and are committed to a long-term plan, versus tracking the current price market trends. There are projects coming on line today that started fifteen years ago when the average yearly price was $15 a barrel.

There is no crystal ball for what lies ahead. Drilling budgets are being severely cut, drilling rigs continue to be stacked, and layoffs are happening. The road ahead will be rough.

There will be a return to higher oil and natural gas prices; it’s inevitable. Some analysts believe prices will spike by the end of 2009; some longer. The oil and natural gas gluts the world is now experiencing will turn into scarcities. The longer the industry stays in a slump the more difficult it will be to respond to the increased prices to come.

Under the veil of the current recession and President Obama’s proposed $30 billion tax on our industry, looking into the crystal ball and predicting the future is almost impossible.

Louisiana is the “Energy State”. Acadiana is the heartbeat that will continue to provide our country with the energy infrastructure to run the engines of the United States. When you look at this chart it becomes easier to understand. Twenty five percent of the oil and twenty five percent of the natural gas that fuels our country flows through the heart of our state. Fifty percent of the fuels that drive the engines of our country flow through the vast energy infrastructure of Louisiana.

The growth in the past six years of the American oil and gas industry will be what will sustain the industry in the slump for the coming months. There is a light at the end of the tunnel and it’s not a train.

http://www.shreveporttimes.com/apps/pbcs.dll/article?AID=2009904270307