EXCERPTS:
"The natural-gas industry touts its fuel as an attractive alternative to coal and oil, saying it's comparably clean, domestically abundant and cheap.
But that final selling point might not last if the industry succeeds in stirring demand even as it cuts back on drilling.
In the past few years, a glut of natural gas has driven down the price to half the 2008 average—a level where it costs a U.S. consumer $2.75 a day to meet a home's natural-gas needs, according to the American Gas Association. That's good news for consumers, but a recent study by consultancy Wood Mackenzie found that 40% of U.S. natural gas produced last year didn't meet break-even prices for producers.
Natural gas now costs roughly the same as its energy equivalent in coal and a quarter of its energy equivalent in oil. The gas industry is making some headway in capitalizing on its relative cheapness: President Barack Obama has endorsed incentives for trucks powered by natural gas, and power companies are considering replacing coal-fired plants with gas-burning ones.
Those steps would increase natural-gas consumption just as production growth is likely to slow. That's because companies now can make more money drilling for oil, whose price has soared last year and in recent months on unrest in Northern Africa and the Middle East.
Proven U.S. natural gas reserves hold about twice the amount of energy as could be generated by domestic oil reserves, according to a 2009 estimate by the U.S. Energy Information Administration. The nonprofit Potential Gas Committee last month increased its estimate of natural gas available for U.S. production to 2.1 trillion cubic feet. That amount represents a 42% increase in the past four years, and is enough gas to meet domestic needs for 100 years at current consumption rates.
Companies use the same type of rig to drill for oil or gas, and allocate equipment according to which fuel is more profitable to produce. The number of land rigs in the U.S. drilling for natural gas is down 8% from a year ago, while oilrigs are up 81%, according to oilfield-service company Baker Hughes, Inc. In April, companies reported more rigs drilling for oil than gas for the first time since 1995, underscoring how oil's profit margins have fattened.
"All of our drilling ideas compete with each other," Larry Nichols, chairman of Devon Energy Corp., said recently. This year, Devon, a major gas producer, is spending 90% of its nearly $5 billion budget on oil drilling. "You look at the ones where you can make money at current prices, and that's where the money gets allocated," he said.
