Washington (Platts)--26Jun2007

Natural gas prices will need to remain high to encourage enough drilling
in North America just to maintain current production, Cambridge Energy
Research Associates and HIS said in a study released Tuesday.

     The report, which analyzed 273 individual plays in all 50 natural gas
supply basins in the US and Canada, found that the shift to drilling
unconventional natural gas resources -- coal bed methane, gas-bearing shale
and tight sandstone -- had buoyed gas production in North America, but has
also raised unit costs because gas production per well has fallen, a trend the
study said is likely to continue.  

     The study said the trend of declining well productivity and reserves per
well observed over the past few years is expected to continue through 2015,
with strong implications for gas production and prices. Even heightened levels
of drilling are unlikely to completely offset declines from maturing
conventional resources, meaning that North America gas production on lands
currently accessible will soon move into gradual decline, the study said.     

     Liquefied natural gas will then be needed to supplement domestic
production, the study added.  

     "The shift toward unconventional gas production was prompted by the clear
inability of conventional gas resources to keep pace with gas consumption.
With LNG imports growing, but not fast enough to serve the appetite of the
market, unconventional gas, even resources that are relatively expensive, are
good options for gas producers for several more years," said Robert Ineson,
CERA's director of North American gas research and a co-author of the study. 

     "With unconventional resources dominating production trends in the next
decade, the performance of existing and emerging unconventional plays will
define the long-run supply curve for indigenous North American natural gas
supply," Ineson said.

     "The challenge will be to develop these plays in a cost-effective manner
to maximize economic production in the face of eventual competition from
imported LNG," he added.

     While Ineson said higher market prices, along with advances in
technology, "unlocked the resource potential of unconventional gas," he said
the study suggests there is a limit to the unconventional resource potential
at market prices within the $4 to $10/Mcf price range analyzed. 

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