W.P. (Bill) Gwozd, P. Eng., Vice President of Gas Services at Ziff Energy, has three decades of natural gas experience. Mr. Gwozd prepared and implemented gas supply contractual purchases and gas storage strategies, directed gas control functions for transportation contractual arrangements, and prepared written regulatory applications. Experience with transportation planning of natural gas liquids pipelines and storage facilities with a leading international integrated producer. Mr. Gwozd oversees the North American Gas Strategies Retainer Service, which focuses on forecast assessments and semi-annual client debriefings. Customized consulting assignments include: long-term natural gas price outlooks, pipeline acquisitions, regional changes in gas markets, North American gas supply and demand forecasts, gas storage development, transportation alternatives, and regional Multi-client assessments. Mr. Gwozd has led numerous client on-site presentations and moderates technical panels at Gas Conferences. He (co) authors monthly client-confidential reports and analyses. Mr. Gwozd is a frequent guest contributor to various TV stations, radio, newspapers, and magazines.
Me: Mr. Gwozd, can you please explain as briefly as you can, your view of the natural gas markets?
Mr. Gwozd: There are 5 sectors that comprise the natural gas markets: Residential, Commercial, Industrial, gas for gas fired power generation, and gas for pipeline fuel. Overall, the gas markets are growing at almost 2% per year. Gas markets consume 70 Bcf/d, so 80 Bcf/d will happen in a decade. The question that industry needs to focus upon is where will this new gas come from? Several logical answers include: Mackenzie Delta (albeit, the economics look fairly challenging), the giant Alaska field (4.4 Bcf/d is possible, although there are several important hurdles that need to be overcome), LNG is gas from other countries and seems the most likely, gas hydrates is possible, perhaps within 20 years, and development of unconventional gas sources such as gas from Coal bed, or Shale, or Tight Gas formations. In your lifetime, the challenges you will face is ensuring that the gas is available when the gas market requires it - that is to avoid outages like what happens in the power sector from time to time. To ensure that this does not happen, industry requires a clear path - in a way - a clearer view on an energy policy - a policy that ensures gas supply balances with gas market needs, not just today, rather in balance over the next several decades
Me: I’ve heard you say in a previous interview that natural gas prices in certain parts of the country can go as low as $1 per Mcf, what implications does this have for the rest of the industry?
Mr. Gwozd: I am on record that gas prices can go to 0 (zero) - that is lower than the $1 per Mcf. Several examples will help clarify:
1) This year, natural gas in the US Rockies region (Denver) fell to $0.15/Mcf for several reasons:
a) surplus gas needs to their local gas demand
b) no incremental pipeline in place to transport the gas to markets
c) growth of LNG to North America
2) Last year, Chesapeake and Questar (two US intermediate sized gas producers) shut in their gas (about 50 to 100 Mcf/d each) to avoid selling their gas at such a low value.
As North America gas prices fall off (especially in the later months of Aug., Sept., and Oct.,) implications for gas producers and support companies might include:
a) scaling back new gas directed gas drilling and 'living' on yesterday's gas
b) shifting capital to oil or oil sands from gas
c) reducing overhead costs
Essentially, the 'consumption' side would see lower costs.
Me: Why is it that natural gas drilling in the United States (indicated via drill rig counts) is so much higher than in Canada and especially Western Canada?
Mr. Gwozd: North America has several 'work horse gas basins'. The US Gulf of Mexico accounts for a quarter of North America gas production similar to Western Canada. The balance of the USA accounts for the remaining half of the production. Consequently, that is an indicator that the US will have more drilling activity. Secondly, most US gas wells are twice as deep as an average Canadian gas well, so the well in the US takes longer to drill and complete. If you were to normalize drilling rig statistics to 100 for 2001, then both the US and Canada declined in 2002. However, by 2003 and through 2006, Canada as a percent of the normalized 2001 year, actually had a greater percent of rigs than the US. For example, in 2005, Canada was at 154% of the 2001 level of Rigs being active, whereas for the USA they had only 126% of 2001 rigs under way. In 2007, the US will average around 1,300 rigs vs. about 200 in Canada.
Me: Lastly, what advice would you give to investors who are looking to invest in natural gas stocks?
Mr. Gwozd: Ziff Energy does not follow stocks, nor invest, nor buy, rather we focus on gas fundamentals. This is quite unique and it means that our advice is not biased. Personally, it is not appropriate for me to invest in the energy sector as I work very closely with energy companies on private assignments.
As to the energy sector, some selection criterion that a person may wish to consider include: % gas vs. % oil in the company and then weigh against your opinion of future price outlooks, the regions the company invests in (sub sections with Canada and in the world), and technology savvy companies who are drive their unit costs down. Natural gas is a volatile commodity in the sense that the price can 'swing' over time, so there is significant risk in investing, although there is potential for high upside.
Thank You Mr. Gwozd!
|