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It’s time to get real about new gas supplies, says industry American Gas Association wants barriers to exploration, production lowered; rates Alaska’s potential at 250 tcf, enough to meet U.S. needs for a decade Gary Park PNA Canadian Correspondent
The case for speeding up Arctic natural gas development has received a fresh lift from the American Gas Association, which warns that consumers face sharply higher prices in the next 10 to 15 years unless fresh supplies are brought to market.
In a report released Dec. 11, the AGA said Alaska gas and liquefied natural gas will “likely account for a significantly larger share of the supply mix” over the next two decades.
Describing the 35 trillion cubic feet of Prudhoe Bay as just the tip of the state’s resource potential, the AGA said Alaska’s gas resource base has been estimated at 250 trillion cubic feet — enough to support all of the United States’ needs for more than a decade.
The study forecast that Alaska will be among the “non-traditional sources” providing the lion’s share of expected growth after 2010.
“At the wellhead, Alaska is the third largest gas producing state in the U.S.,” the AGA said. “Since 1995, wellhead gas production has averaged 9.4 billion cubic feet per day, which is exceeded only by Louisiana and Texas.
“However, 86 percent of this production is reinjected in order to improve oil recovery on the North Slope and because there is no pipeline” to the Lower 48.
But adding Alaska to the Lower 48 supply chain depends on “overcoming economic factors and impediments to siting facilities (as well as) the gap that develops between domestic production capability and growing gas demand,” said the report, entitled From the Ground Up: America’s Natural Gas Supply Challenge.
Government action urged Among its recommendations, the AGA urged the federal government to take the lead in “overcoming the logjam created by a pervasive ‘not in my backyard’ attitude toward energy infrastructure development in this country.
“State officials must also recognize that economic development and environmental quality for their citizens hinge on increased natural gas supplies.”
The AGA also urged Washington to work “closely and cooperatively” with the Canadian and Mexican governments to solve North America’s challenge of “supplying competitively priced gas, in an environmentally sound manner, to a growing market.”
New technologies need to be shared In calling for technologies and practices to be shared among the three partners in the North American Free Trade Agreement, it noted that development Canada’s East Coast offshore has been successful, while similar geological formations in the U.S. Atlantic are off-limits to producers, along with most of the West Coast and Eastern Gulf of Mexico.
Similarly, the development of coalbed methane in the U.S. Rocky Mountain region offers the potential for technology transfer to the vast, but untapped CBM resource of Canada.
“At the very least, projects to move gas from Alaska to the Lower 48 will require cooperative foresight by both (the U.S. and Canada) in order to efficiently and economically develop stranded gas supplies,” the AGA said.
Canadian report also out The AGA report was released one day before Canada’s National Energy Board issued what could be a distant early warning for the Western Canada Sedimentary Basin, the largest single gas supply basin in North America and the source of at least 15 percent of U.S. gas needs.
The federal regulator said the Western Canada Sedimentary Basin — which sprawls from the Northwest Territories and Yukon through northeastern British Columbia, Alberta, Saskatchewan and into Manitoba — faces a drop of 4.3 percent in deliverability over three years, lending weight to arguments that the Arctic is a crucial new source just to sustain current output.
The study projected deliverability will slide to 15.9 billion cubic feet per day by the end of 2004 from 16.6 billion cubic feet per day at the end of 2001, when production was already 900 million cubic feet per day short of a December 2000 market assessment by the NEB.
In continuing to scale back its forecasts for the basin, the NEB reinforced a growing sentiment that Canada is in an era when ever-increasing drilling is yielding ever-decreasing supplies.
Noting that the Western Canada Sedimentary Basin must achieve 3 bcf per day of new production each year just to maintain current levels, the NEB said: “For the past several years, it has taken an increasing drilling effort to accomplish this.”
Move to riskier areas unlikely But, despite a combination of lower initial production rates and faster decline rates since 1996, the industry is not likely to deviate from its strategy of recent years by making any sudden shifts to riskier areas of the basin, said the study.
It said that although low-cost, shallow wells in southeast Alberta and southwest Saskatchewan generally come on stream at a mere 200,000 cubic feet per day compared with 21 million cubic feet per day in the deep Foothills, the average drilling costs range from C$100,000 for a shallow well to C$10 million per well in the deeper, more complex Foothills plays, which are outside the financial means of all but the largest E&P companies.
Although the NEB forecast drilling in the Western Canada Sedimentary Basin will continue to rise over the next two years in response to growing North American demand, that will not be enough to compensate for lower initial productivity per well connection, which is already 25 percent below 1995 levels.
The only encouraging sign is that initial production rates for 2001 well connections appear to have stabilized at 2000 levels, while decline rates have shown some hints of flattening out, the study said.
The NEB plans to release a report on Canada’s energy supply and demand outlook to 2025 in the spring of 2003.
Resources described as vast But the American Gas Association report also gave hope in describing the North American gas resource base as “vast, diverse and dynamic,” noting that it has kept pace so far with cycles in gas production and consumption.
It said current estimates of remaining U.S. and Canadian gas resource potential are substantially higher than they were 20 years ago, despite the consumption of 200 trillion cubic feet in the United States over that period.
Improvements in exploration and production technology and the momentum of market forces have contributed to a dramatic rise in the ultimately recoverable resource base in the United States, the AGA said, referring to estimates developed by the Potential Gas Committee of the Colorado School of Mines.
In 1980, the committee calculated the combined proved reserves, potential resources and cumulate production to date at 1,708 trillion cubic feet. At the end of 2000, the committee raised that figure by 30 percent to 2,208 trillion cubic feet.
Those revised figures reflected technological advances that made opened the door to new sources of gas, such as gas from coal seams or production from deposits located under thousands of feet of water, which have seen U.S. production migrate to the deepwater Gulf of Mexico, south Texas, north Texas/Louisiana and the Rocky Mountain basins.
Non-traditional gas more price competitive On the price front, the AGA said analysts believe gas from non-traditional deepwater, Alaska and LNG sources, that may not have been viable at wellhead prices of US$2 per million British thermal units, are more competitive in the range of US$3-$4.
It said prices from the mid-1980s to 2000 were stable and actually fell when adjusted for inflation, but have since experienced fluctuations because of a tightening balance been supply and demand, creating a “tightrope” effect that is sensitive to even small changes in weather, economic activity or world energy.
The AGA also concluded that “current resource estimates for many frontier areas appear to be very conservative,” arguing that geologists tend to underestimate the size of new fields.
“The simple act of exploring for natural gas in promising areas can, and often does, result in new discoveries over and above previous estimates,” it said.
In that context, the AGA said Canadian production can grow, but likely outside the Western Canadian Sedimentary Basin except for development of coalbed methane reserves in Western Canada.
“In many ways, development of new gas resources in Canada reflects the challenges of discovery in the U.S.,” the study said. “Basins in Western Canada, particularly in Alberta and British Columbia, have been extensively drilled, although not for as long a time as some producing regions in the U.S.
“More drilling will need to be targeted in Eastern Canada (offshore) and in the less explored northern tier of the Yukon, Northwest Territories and the Arctic Islands if Canadian production is to grow.”
Projecting sources of U.S. traditional supply, the AGA estimated the Lower 48 will rise from 20.8-21.3 trillion cubic feet in 2005 to a range of 19.7-24.7 trillion cubic feet in 2020, while Canadian exports to the United States will climb from 3.9 trillion cubic feet in 2005 to between 4.5 and 7 trillion cubic feet over the 15 years.
Consumption is expected to soar 50 percent from 22 trillion cubic feet in 2001 to 33 trillion cubic feet in 2020, underscoring the critical importance of migration to new sources.
“Americans want a stable, reliable source of environmentally friendly energy that is produced in North America,” said AGA president and CEO David N. Parker in a news release.
“They find it in natural gas. But, given the long lead time associated with producing and transporting natural gas, critical decisions must be made now.
“As a popular television psychologist might say, it is time to ‘get real’ about increasing supplies of natural gas in the face of growing customer demand.”
Parker said the irony is that laws and regulations encourage the use of gas, but outdated concerns about the environmental impact of finding and producing gas make it increasingly difficult for companies to match consumer demand.
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