By Jennifer Dlouhy

Hearst Newspapers

WASHINGTON -- Natural gas enthusiasts are optimistic that the hydrocarbon could be a major source of low-cost electricity nationwide as an explosion in domestic production drives costs down and looming environmental mandates encourage utilities to retire coal-burning power plants.

But energy experts and executives at the five-day CERAWeek conference here Wednesday described a landscape of obstacles still standing in the way of natural gas producers. Chief among them: quelling public fears about water contamination from the hydraulic fracturing process that is essential to unlocking natural gas in U.S. shale formations.

The industry also is struggling to shed its reputation as an unreliable power source prone to boom-or-bust cycles and volatile prices -- a big hurdle to getting electric utilities to ink long-term agreements for the fuel.

"The message is just getting out there that there is a lot of supply," said Guy Buckley, a vice president of corporate development at Spectra Energy, a natural gas pipeline and storage company. But it will take awhile for power utilities to be convinced that low natural gas prices -- currently just under $4 per million British thermal units -- are here to stay, especially since the price tag was projected to be double that just a few years ago.

"It's going to take a couple years to get demand there," Buckley said. "People aren't just going to turn their heaters up to 80 degrees because gas is four bucks."

At the same time, Buckley said, "you've got to change some of these big decision-makers" such as executives of utilities that can generate electricity from gas. "Those decisions will get made as they become more secure that the shale gale is real, it's here and that prices are reasonable."

Energy companies are exploiting advances in horizontal drilling techniques and the hydraulic fracturing process to extract previously unrecoverable natural gas from shale formations across North America. They are unlocking reserves that could fuel the nation for at least 100 years, analysts say.

The "wondrously increasing supplies of domestic natural gas" and low price projections are already spurring electric utilities to retire dirtier coal-fired power plants and replace them with gas-based facilities, said John Rowe, CE of Exelon, one of the nation's largest electric utilities. Proposed and expected environmental mandates also will fuel that transition because gas produces fewer pollutants than coal, Rowe added.

Thomas Farrell, CEO of the Richmond, Va.-based utility Dominion Resources, noted that natural gas-fired power stations are cheaper and quicker to build. But, he said, the coal-to-gas transition won't happen overnight.

"It's going to take a long time to transition a fleet that was built up over 100 years to another kind of fleet," Farrell said.

Natural gas boosters also have a major public image problem, said Scott Sheffield, CEO of Pioneer Natural Resources Co., a large independent exploration and production company based in Irving, Texas. The challenge grew larger with last year's Gulf of Mexico oil spill, which undercut the industry's assertion that it lives on the cutting edge.

"We were telling Congress and the administration how great our technology was, (but then) the technology failed in the deep-water Gulf of Mexico," Sheffield said.

"We have to address the technology issue and convince Congress that we still have great technology and that you're not going to have contamination," Sheffield said. "It is hard for them to believe us."

The hydraulic fracturing process involves injecting mixtures of water, sand and chemicals deep underground at high pressures. The pressure breaks up shale rock and other tight formations to yield natural gas.

Conservationists have raised concerns about the water demands of fracturing. Environmentalists also warn that natural gas can escape out of poorly designed and secured wells. Harmful chemicals used in fracturing fluids can taint nearby water sources, they say.

Recent New York Times reports also highlighted the risks posed by companies disposing radioactive fracturing wastewater in rivers that supply drinking water and sewage plants that are not capable of treating it.

"There's a risk of losing public confidence in the management of the risks of domestic energy production," said Jason Bordoff, Associate Director of Energy and Climate Change for the White House Counsel on Environmental Quality.

The fears are especially acute in the Northeast, where regions that haven't seen drilling rigs in decades are suddenly inundated by them, as companies rush to produce natural gas from the region's Marcellus shale formation.

"The industry is definitely under attack," said Stacy Schusterman, CEO of Samson Investment Company, during a panel on the third day of IHS Cambridge Energy Research Associates' week-long conference here. "But I think the bulk of that is happening in states like Pennsylvania and New York, where the amount of drilling growth is something they haven't seen before and the system is not really set up to handle the volume of activity from the public's perspective."

Lower-than-forecast natural gas prices have freed up capital, but for energy producers, there is a major downside, Schusterman said.

In some shale plays with high temperatures and pressures, such as the Haynesville formation in Texas and Louisiana, the cost to produce natural gas may be higher than the price it can command on the market, Schusterman said.

"There is a price below which producers won't drill," Schusterman said. But, she added, the economic calculus could change for companies that are able to produce unconventional oil and other liquid hydrocarbons along with natural gas.

Natural gas production in the Haynesville shale may not be economic on its own, she said. But, she added, "the economics can work with the liquids."