The Oil OR Gas Business: A Coming Surprise?

It seems ironic to me that we talk about the oil AND gas business because we have acted more like it is the oil OR gas business.

Early in my career it seemed that everything was about oil.  I thought $1.25 /mmbtu was a great price for gas and that gas was mostly a lagniappe that came with oil.  But after a prolonged slump in oil prices, sudden and carnival-high spikes in gas price captured the collective imagination first in 2000-2001 and then solidly in 2003.  Future prices revved up, and attention turned.  Until about 2009, gas was all the rage - news reporting, capital budgets, investor presentations (read "advertising") all turned to gas.  For the first time in my career, it became fashionable to report reserves in equivalent cubic feet of gas instead of equivalent barrels of oil, even for companies still heavily dependent on oil.

Then, like the ending of a teenage fad,  investor presentations almost universally touted the speed of pivot back to oil. Gas prices stayed down while oil popped back up toward previous levels.  Except for a very small group of dedicated gas companies, the industry followed the prices en masse into oil.  Meanwhile, the Marcellus and Utica plays together drove gas prices further down and crowded out most other sources of gas - at least those not associated with oil.  If it weren't for this boom in supply, then I suspect the industry would have pivoted back to gas in the last two years as oil prices imploded.  Since the crash in 2008, spot gas prices have been flat to down while demand has increased from 63 Bcf/d to over 75 Bcf/d.  An extraordinary growth in supply more than compensated for rapid demand growth.

Already this spring and summer both gas and oil prices have bloomed to levels roughly 70% above the winter's nadir.  Now, for the first time in years and notwithstanding the recent retreat in oil, current prices resemble future prices for both commodities, and we can finally get back to work in more basins than just Permian and Appalachian. 

But I wonder. . .

In the past, we didn’t see the switch coming.  Peak enthusiasm, peak investment and peak prices coincided, and our lemming investment trends led us first over a cliff in gas prices and then in oil. 

Will this happen again?  Is there a surprise lurking in the much-ignored gas market?  As we return to investment, will we overweight one commodity over another or take a more circumspect view.

 What do you think?