The Barnett Shale discovery has paved the way for the many new shale gas plays across the country. Both the public and policymakers underappreciate the natural gas opportunity of jobs, cleaner energy, and a bridge to next generation energy sourcing.

1. No Black Swans Here: A Texas-Led Gas Rush
The renowned Barnett Shale natural gas field has proven itself a prolific source of energy
and tipped off a massive “gas rush” of shale gas exploration. In fact, with the many new
gas field discoveries across the country, a glut of sorts has occurred in natural gas,
driving down prices. Chief executive Scott Sheffield of Pioneer Natural Resources
affirms the Barnett Shale’s impact: “The discovery of the Barnett Shale and its
applications has really affected the entire natural gas landscape of the U.S. The many
shale play discoveries could totally change the use of natural gas as a major energy
source.”
New technologies such as horizontal drilling and 3-D seismic imaging, coupled with
hydraulic fracturing (called “fracing”), which stimulates production in wells, has made
the economics of recovery from these “unconventional” gas resources more favorable to
producers. But the added supply of natural gas has driven down prices to a very low
point. Sheffield mentions that in the last year prices averaged $4 mcf (thousand cubic
feet) and are now hovering around $5 mcf. Throughout his thirty years of experience in
the industry, natural gas was typically priced in comparison to oil at a ratio of 8:1. As of
mid-November, the price ratio of oil to gas was around 16:1, with oil trading near $80
and gas moving toward $5 mcf. With low prices and roughly “100 years of supply found
in the last two to three years,” according to Sheffield, natural gas CEOs were called to
action.
CEOs Unite
“Last March with the industry finding an abundance of natural gas, twenty-nine CEOs
got together in a manner of days,” Sheffield recalls. “I’ve never seen so many CEOs
gather together so fast.” With such a large supply of gas, demand needs to increase for
the continued recovery of gas reserves to be economical. Sheffield says that both
Congress and the public need to be educated about the benefits of natural gas. “We have
a 100-years supply of this energy resource,” he continues. “It emits 50% less carbon than
that of coal, not to mention that natural gas can reduce our dependency on crude oil
imports. The industry also creates roughly 2.8 million jobs a year.” With natural gas a
potential game changer in the energy mix, a new trade association, America’s Natural
Gas Alliance (ANGA), was formed to help deliver their timely message for America’s
energy challenges.
While Congress debates a cap-and-trade bill to reduce greenhouse gas emissions, fully
understanding the natural gas opportunity is vital. Natural gas’ role could be furthered as
a transportation fuel to replace some of the refined-oil gasoline currently used in vehicles.
Toward that end, Pioneer supports Boone Pickens’ plan of converting fleets and more
light-duty vehicles to be natural gas-powered. Pioneer and other ANGA members are
taking steps to convert their fleets to natural gas, with Chesapeake even subsidizing the
leasing of Honda Civic’s natural-gas vehicle for employees. They will lead by example,
and yes, more natural gas refueling stations will be needed. One state already leads the
pack: Utah’s natural gas refueling stations will grow from 25 to 41, owing to a $15

2. million grant of stimulus monies. The Department of Energy estimates that Utah's grant
will offset 1.1 million gallons of gasoline.
Besides expanding natural gas as a transportation fuel, it has a greater role in power
generation than currently exists. To compliment the Obama administration’s climate
change agenda, Sheffield suggests that natural gas-fired power could help in replacing
25% of the oldest, dirtiest coal-fired power plants in existence; these power plants would
never make the cut when emissions reductions come to the fore. The coal industry opines
that natural gas is a volatile energy source, with prices fluctuating greatly over the last ten
years. “In the past twelve months, there’s been no volatility in gas prices, even with the
hurricane in late-2008, which took 40% of production offline,” Sheffield states.
“Volatility hasn’t been a problem because of the gas glut. We’re less dependent on Gulf
of Mexico production like we were in the past; Gulf gas has decreased from 35% of our
supply needs to just 15%.”
Black Swan of Shale
Natural gas appears to be undergoing a revolution. Early in the year, an energy
commentator said that shale gas was the ‘black swan’ of the natural gas sector that
nobody saw coming. It is changing the paradigm, but several industry veterans surmised
its full potential early on. Other countries around the world such as Argentina, Pakistan
and Thailand use natural gas as a transport fuel to a greater degree than the gas-rich U.S.
does. Major European oil companies are forming joint ventures with U.S. independents
(like Chesapeake and EXCO) to learn about our technologies, says Sheffield. He believes
they don’t care so much for our gas, as to learn how to transfer our technologies to use in
Eastern Europe, Russia, and China, where advances in exploration and recovery methods
are needed.
The next couple of years may be tough for the natural gas industry, according to
Sheffield. With record inventories and many public companies expressing intentions to
add to their rig counts, Sheffield expects gas prices of about $5 mcf for 2010 and $6 for
2011. With Congress floating ideas about removing existing tax incentives in drilling and
given that independents drill 90% of the natural gas supply in the U.S., substantial
pressures on profitability could be at hand. Even at $5-6 prices, firms can make money,
but not a lot, says Sheffield. He expects demand to pick up after 2012, when supply,
demand, and price are expected to be in better alignment.
Because of recent shale discoveries, thirty-two states now have a stake in the U.S.’s
natural gas future. From both economic and environmental perspectives, natural gas
should prove to be the “bridge” energy source that moves the U.S. toward a lower carbon
economy.
Scott Sheffield, chairman and chief executive officer of Pioneer Natural Resources, serves on the
Maguire Energy Institute’s board of advisors.
By Jennifer Warren for the Maguire Energy Institute. Prices and interview comments as of mid-
November ’09.