Dry Gas sets the price at $6 - $7 per MCF once 'Gold Rush' over
The wet gas plays will not act as a "governor" for NG prices. NG prices will eventually be set by the marginal MCF - that is the highest cost natgas plays. Liquid rich and oily plays only account for about 1/3 of the 22 BCF we need to come up with each year (see Encanas June/12 investor presentation) to offset declines...so how can wet gas set the price??
This discussion of cost 2 to 3 years out seems a bit premature. Current pricing has NOTHING to do with cost and everything to do with the overbuilding due to the 'Gold Rush' and assuming many past cost are sunk, and drilling to hold, or drilling just to maintain some form of cash flow...while going bankrupt.
Oil&Gas Cos/Wall Street consistently overestimate production. On the oldest play, Barnett, they were forecasting EURs of 2.5 BCF, and the USGS and state agencies indicate it more like .6 BCF. Yikes. The life-time output of these wells is critical because that is the number that is divided in the total cost to get a cost per MCF...and billions of dollars of write-offs will follow.
Also important, as the drillers learn about the areas, they head for the core of these shale deposits (typically 10 - 20%) of the deposit. They always drill/mine/cut/etc. the 'juicy center' to bring results/production forward so they get their bonus, flip the property, stay solvent...
As they move over time from the core to the fringe, lower EUR wells will be drilled at the same cost. That makes today's cost structure as rosy as it gets. Some will say "technology is improving" and so is productivity, but how much of that is due to zeroing in on the core these past few years? What kind of quantum leaps in technology occur every year - changing the slick water formulation a bit to get a few more MCF??
The future tech improvements will have to make up for the enviro regs that are on the way, community push back which will only increase with more drilling activity, increased legal fees as water contamination gets linked to fracking (Dimock, Pavillion...), increased water and waste-water disposal costs...
Not suggesting fracking is worse than coal or securing 'our' M.E. oil - just that true DRY GAS costs are not widely accepted - the higher cost plays NEEDED TO MEET DEMAND (the marginal MCF) will SET THE PRICE - and they have FULL CYCLE costs on the order of $6 - $7 per MCF...today!
...remember, the cost story gets worse as drillers move toward the fringe.
