New York – The rig count may be off dramatically, but that doesn't mean production is falling across the board or that supplies are dropping as quickly as some expect, according to a top natural gas industry consultant.

Some unconventional natural gas plays in the Rockies and shales such as the Haynesville have continued to see increased activity even as more traditional natural gas areas have seen steep falloffs in drilling and exploration, said Porter Bennett, founder, president and chief executive officer of Bentek Energy LLC.

"Production is down relative to last year, but notice it's not that far from where it was in January of 2008," Bennett said. "You've got growth, even though drilling activity has declined."

Bennett is also chairman of the Natural Gas Committee. He spoke during the recent GasMart 2009 conference in Chicago.

The Haynesville shale actually has six more rigs running today than it had at the peak of drilling activity last year, Bennett noted. It certainly doesn't hurt that Haynesville can still produce at a profit even at current low natural gas prices.

Other shales, such as the Marcellus, are helped by being closer to end markets. And with such advantages, such shales are "rapidly becoming the big dogs of the industry," Bennett said.

That means the center of gas production is shifting away from traditional mid-Continent plays such as the Permian basin to parts of the Rockies as well as to shales such as the Fayetteville, Barnett and Marcellus.

And with improvements in drilling efficiency, the rig count alone is not as reliable an indicator as it might have been in the past, Bennett suggested. That's because experienced shale operators can drill more wells with fewer rigs, he said. But Bennett also pointed out that some of that increased efficiency is a result of the downturn: more inefficient rigs have been taken down as demand slides while the most efficient rigs have been transferred to drilling areas that remain profitable.

In the Green River Basin's Pinedale and Jonah fields, for example, Questar Corp. recently drilled 20 wells with about 9 rigs, Bennett said. Last fall, it was 20 wells with 12 rigs. As recently as late 2007, it took about 18 rigs to drill 20 wells.

"We've got two years of sustained growth well above demand," he said. "That is where the roots of the price situation that we're in come from."

Producers may not like the low tags, but they're good from consumers' point of view, he said. Still, consumers may want to watch for what they wish. That's because if prices stay low, producers could see top talent leave, Bennett said.

The situation today harks back to the early '80s, which also saw a precipitous fall in energy prices along with drilling and exploration activity, he said. "The real issue as far as far I'm concerned is people," Bennett said. "If prices stay this low for very long, people are going to get driven out of the business … It's a big problem, and it takes time to fix."

With supplies high and prices soft, the only solution for the industry may be widespread production shutdowns. "I would imagine very soon you'll see more of them. There have already been some," he said. Growth in 2010 will probably be limited, he added.

There will, however, likely be more shale activity globally. "In fact, that's where I think a lot of U.S. companies are going to have to go to get a reasonable rate of return anytime soon," Bennett said.

Another big issue the industry will have to contend with is the dislocations being created by the Rockies Express pipeline, which is marching steadily eastward and in June will stretch as far east as Lebanon, Ohio. It should be in Clarington, in eastern Ohio, by the end of the year.

But the fact that REX–as it is referred to by industry insiders–is rapidly approaching the East Coast, doesn't mean it will be able to get gas directly to the region. That's because there is simply not enough pipeline capacity to move gas from Ohio to points east.

"Rockies gas can get to Ohio, but that doesn't necessarily mean it gets to the Northeast market," Bennett said.

REX is already transporting Rockies gas to the Midwest as well as to California–albeit on a much detoured route. REX is also creating big supply buildups in some regions and flattening out basis differentials.

When REX gets to Lebanon, for example, it will connect with transmission lines that will allow it to send gas south and then up into the northeast. That could create a supply buildup in the Gulf of Mexico area as soon as next month, Bennett said.

New capacity is necessary, especially to move gas to proposed new power plants in the Southeast. The region's power generators don't have enough pipeline capacity on hot summer days already, Bennett told Perspectives on the sidelines of the conference.

That could mean the new power plants in the Southeast would have pipelines that go with them and would allow them to tap into Gulf-area gas, Bennett said.

But the Northeast, which certainly needs more gas, remains a thorny issue.

"You've got to build something that gets gas out of the Gulf to the Northeast, and nothing like that is being talked about right now," he said.

Even if a pipeline were to be built, it would take years and could cost as much as $15 billion to $20 billion. The Alaska pipeline, in contrast, cost roughly $26 billion, Bennett said. "It's not something that anyone is going to take on lightly," he quipped.

The current political situation doesn't help the investment climate, Bennett argued. He thinks the Obama administration is "doing everything they can to restrict the use of gas."

"We'll be using LNG, and we'll be dependent on foreign gas, as opposed to using our own resources," he said.

In short, dear reader, with LNG, the carbon is on someone else's dime.

Bennett places blame for what he sees as a less-than-friendly reception for natural gas in D.C. largely at the foot of the environment lobby.

"This administration is very beholden to them, and the environmental guys don't want to see wells drilled. They think oil and gas are the big bad guys," he said. "It's throwing the baby out with the bath water is what it really boils down to."

reprinted with permission from American Metal Market.