The year ahead will be the year of the gas shale development. This is hardly a bold prediction but the implications of increasing gas production from emerging shales (the Haynesville, Marcellus and Eagle Ford) continue to change the landscape of the E&P and service industries. In 2008, the hottest oil patch T-shirt was Tudor Pickering Holt's "Got Shale?" In 2010, the motto will be "Got Shales?"

The reasons are easy enough to understand. Shale development will require fewer rigs in fewer places. A total of 1,500 rigs will be required in the long term to balance the US gas market, compared with 2,350 operating at the peak in 2008. US gas prices will also be lower in the long term: about $6.5/Mcf as supply growth from shales lowers the marginal price of gas. In the short term, an inadequate rig count will cause domestic production to fall and gas prices to rise well above their suppressed 2009 levels. Finally, shale development will place a premium on drilling and completion technologies, as long horizontal laterals and multistage hydraulic fracture treatments require intensive application of technology.

Applying technology from horizontal gas shale developments to oil development is yielding improved results in the Bakken. Other continuous oil plays, the Barnett and the Eagle Ford, will be the new "Bakkens" of 2010. These plays will not eliminate US dependence on foreign oil imports-not by a long shot-but high oil prices and low well costs create exceptional development economics.

New global gas liquefaction projects in Qatar, Russia and elsewhere are scheduled to be on stream in 2009 and early 2010. How much LNG ultimately shows up in the US is dependent upon several key variables: Will global gas demand be soft or weak? Will the new liquefaction projects start on time or be delayed? Will current mechanical problems in existing liquefaction facilities (e.g., Nigeria, Algeria) continue to impact LNG volumes? Will European gas consumers increase their purchases from Gazprom to make up for lower volumes in 2009? Will US gas production decline sufficiently in 2010 (due to the low rig count) to allow domestic gas prices to rise, thereby increasing LNG imports?

US LNG imports will likely increase to 2.5 Bcfd in 2010 from 2009 levels of about 1 Bcfd. The range of potential imports is 1-4 Bcfd due to the uncertainty in key variables driving the global LNG market.

Oil prices will continue to be volatile. Current high negative correlation with the US dollar makes any price estimate difficult at best. Predicting the dollar direction is above my pay grade but, combined with geopolitical uncertainty, oil prices in 2010 will continue to be influenced by factors other than supply and demand fundamentals. Once global demand returns, oil prices should return consistently to the $90/bbl level.

In Washington, I'm not claiming to be an "inside-the-Beltway expert," but here is my reading of the legislative tea leaves. Cap-and-trade will have difficulty passing Congress. Why? It is simply too complicated. Cap-and-trade creates complex financial derivatives at a time when Congress is still reeling from a burst housing bubble that was caused, in part, by financial derivatives.

Regarding the threat of strict regulations on hydraulic fracturing, cooler heads will prevail, and individual states will continue to regulate hydraulic fracturing and not the EPA.

Excerpted from World Oil Magazine Dec. 2009