What is the contribution of shale gas to domestic production?
BORGARD: Shale gas is the rage in the United States. Production of shale gas in the year 2000 only amounted to about one percent of our domestic production. Today, shale amounts to about a third, and that has had a favorable impact on prices from a consumer standpoint.
What companies have been leading the boom in shale gas?
BORGARD: Most of the production companies are involved in shale plays. It is the combination of horizontal drilling and fracturing of shale rock, those two technologies combined, that really brought shale to the forefront. Exploration and Production (E&P) companies are involved tremendously, and our customers benefit. The American Gas Association represents distribution utilities, so it is our customers that have the great benefit of that. I would think that E&P producers would probably prefer a higher price for gas than the $2.50 that it is today.
What impact is the current commodity price having on the industry?
BORGARD: Historical pricing during Hurricanes Katrina and Rita, just a few years ago, was in the $10 to $14 range. On a comparable basis, today it is around $2.50. This has led to a tremendous change in electric generation in the United States. Natural gas is displacing coal in a significant way, and it has led to an increased use of compressed natural gas vehicles as well, principally in the trucking end of the business. I can tell you, as a company that distributes natural gas, the low price of the commodity creates headroom on customer bills to enhance our infrastructure replacement and not have the customer see a significant increase in their bill.
How are demand and consumption patterns evolving?
BORGARD: Even with all the gas that we produce in the United States today, residential consumption on a per household basis has actually been declining over the last twenty years. That is because houses are getting tighter and appliances are getting more efficient. From a residential standpoint, on a per house basis, natural gas consumption is declining. Where we see increases, and some potential new business, are businesses that have gone off shore that are coming back to the United States, such as steel, fertilizer manufacturers, and other types of businesses. Electric generation is really taking the lionâ€™s share of new gas today. For steel, chemical, and fertilizer manufacturers, we didnâ€™t think we would have ever had a new plant or an expansion of a plant built in the United States ever again. In fact some CEOs actually said that a number of years ago. But now we are seeing expansion of plants and even new plants being built in the United States. It is a boom to the manufacturing base in those states that have those kinds of industries.
What is the outlook for the supply of natural gas?
BORGARD: The resource base in the United States is approaching or exceeding 2100 TCF (Trillion Cubic Feet), and we use about 20 TCF a year. Some experts suggest that we continue to underestimate that total resource base. It has been growing over the last several years.
Shale gas is the rage in the United States. Production of shale gas in the year 2000 only amounted to about one percent of our domestic production. Today, shale amounts to about a third, and that has had a favorable impact on prices from a consumer standpoint.
Are we at a state of technology today where gas can be globally commoditized?
BORGARD: We have three gas pricing zones in the world today. There is a North American zone, a Far East zone, and a European zone. There are vastly different pricing levels within each one of those zones today. This is no different than the basis differential that we see in the United States from one point to the other. Over time, one would expect that arbitrage opportunities exist and that those prices become more level. They probably will not become completely level over time, but more level than they are today.
What are the environmental benefits of using gas as opposed to coal?
BORGARD: Natural gas is the cleanest fossil fuel. If you think about natural gas use for electric generation, the greenhouse gas emissions are about 50% of what they are with coal. The same goes for electric water heating compared to natural gas for water heating. You see about a 50% decrease in greenhouse gas there as well. So natural gas is a clean form of fuel, in addition to its national security benefits for the United States and its domestic abundance, it has really got a huge upward potential.