Tuesday, March 17, 2009

Local Communities Should Embrace Natural Gas

Natural gas needs to build local markets
by: OilOnline
Monday, March 16, 2009

The price of natural gas is critically low for producers in the Barnett, Haynesville, Marcellus, and Fayetteville Shales. Recent reports indicate drilling activity in these newly discovered domestic gas plays has seen huge declines in recent months. Wells in the Barnett Shale, Haynesville Shale, Marcellus Shale, and Fayetteville Shale will may not be able to sustain production at prices below breakeven for long. Community tax bases will suffer. Resources and personnel could be forced to move on to other locations, domestic and international. Royalty owners will lose income. Exploration, drilling and production will quickly dry up. Production costs in most of these plays exceed the current $4/MMBtu market price. Most operators require at least $5-$6/MMBtu as a minimum to maintain profitable production. Unconventional gas plays in shale require special expertise, equipment and additional completion techniques that simply cost more cash to economically recover the resource. A $7-$10/MMBtu price should be a policy objective that keeps the domestic industry healthy and contributes to further exploration and US energy independence. The US economy and security may depend on bringing these clean burning gas discoveries in the Barnett Shale, Haynesville Shale, Marcellus Shale, and Fayetteville Shale to market profitably. With price a function of supply and demand, we are seeing a greater supply than demand. That has to change.

The real problem may be marketing. Natural gas producers will need to team up with utilities and product manufacturers to aggressively market their products in metro markets close to these plays. Communities and utilities that benefit should contribute to the effort with incentives and education programs. The quickest solution may be to build stronger local markets for natural gas. Products have to be developed, converted and heavily marketed. In homes, gas heating, cooking, water heating, refrigerators, grills, fireplaces and even backup generators need to regain market share. Electric vs Gas price models need to be advertised. Consumers need to see gas as the clean burning alternative to coal/oil generated electric on a local basis.

According to Lokke Advertising, CEO, Don Lokke, Jr. "Natural gas, locally produced, is critical to energy independence and local economies. Cities and utilities need to embrace the economies of local energy independence. Cities and consumers need to start thinking on a local or regional basis with regard to natural gas consumption. It is most economical when produced and used locally. Gas producing markets need to encourage use of natural gas. The regional economy benefits from lower cost energy, greater direct and indirect tax revenue, increased jobs, and a net decrease in wealth transfer out of the region."

"Local producers face increasing competition form LNG imports and alternative fuels. All the more reason for natural gas producers lead their sector in consumer education and product programs. The clean burning natural gas industry, as a whole, needs to actively support competitive incentives that build profitable local markets. Decreased cost of transportation to nearby metro areas, should offer a competitive advantage for locally produced natural gas. Yet, natural gas use has declined in the face of aggressive marketing and infrastructure investment over the last 50 years by electric utilities at the consumer level. Gas stoves, ovens, refrigerators and water heaters have been replaced in favor of electric alternatives. As a marketing resource and advertising agency, our primary concern is the oil and gas sector. It's our job to identify markets and products that make sense for our clients and the consumer. We aren't talking 'spin' or politically correct justifications. We are looking for sustainable markets that strengthen local and regional economies." according to Lokke.

Lokke Advertising, founded in 1978, is active in the oil, gas and energy sectors with online energy news and web site networks. An Advertising Red Book listed agency for over 21 years, the one man agency/consultancy, out of Dallas has worked with Fortune 500, mid-cap, and small-cap clients for over 30 years. The agency web site is located at http://www.lokkeadvertising.com/.

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