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Pessimism emerges over gas production Higher numbers from independents unable to reverse near-term forecast Larry Persily Petroleum News Juneau Correspondent
Regardless how many more drilling rigs poke holes in the ground and how much independent producers try to pick up the pace, the fear is growing that U.S. natural gas production will slip further behind in meeting rising demand.
U.S. gas production fell about 2 percent from 2001 to 2002, with production expected to hold pretty much flat through 2006, according to the federal Energy Information Administration.
Meanwhile, the percentage of new reserves booked to replace gas drawn down for production also is slipping, the agency said.
All of which explains the increasing look to imported liquefied natural gas to meet the nation’s growing demand for at least the next several years.
“The root of the problem,” according to Simmons & Co., an international investment bank specializing in oil and gas, was that the nation ignored flat North America supply over the past decade. That supply line didn’t jump much despite rapid growth in coalbed methane and tight sand gas, Canada’s Maritime and Ladyfern production, and Gulf of Mexico deepwater gas, Matt Simmons, the company’s chairman, reported at a natural gas conference in Houston in November.
“Conventional U.S. natural gas production actually peaked 30 years ago!” Simmons told his audience. A lot of work is needed And just to fulfill projections of holding overall domestic production steady — much less building supply — assumes new supplies from the deepwater Gulf and Rocky Mountain region, new technologies and a lifting of the federal ban on offshore drilling, Simmons said.
He is not the only one sounding skeptical of meeting the growing demand for gas.
“Much like in the 1970s, when oil production continued to fall, regardless of how many rigs were drilling, we think we are nearing (if not at) a similar crossroads in the U.S. natural gas supply picture,” said Wayne Andrews, oil and gas stock analyst for Raymond James & Associates’ Houston office.
“Given the inherent rate of decline in U.S. natural gas wells today, combined with what is still a muted response to drilling activity, we expect domestic natural gas production levels to continue trending south for the next several quarters,” Andrews said in a recent briefing report.
“While this trend will almost certainly be led by the majors, the independents may not be able to reverse it as fast as many people may have thought.”
Others also see increased pressure on smaller companies to help cover falling production. Cambridge Energy Research Associates reports the nation’s 10 largest gas producers saw a significant drop in output from 2002 to 2003, with the next 34 companies able to cover almost 70 percent of that loss.
“The net effect for all the companies listed is still negative, but the decline is not as dramatic as the numbers from only the largest companies would lead one to believe,” Cambridge Energy Research said in its November briefing on natural gas supplies.
“We and others would love to increase natural gas production in the United States,” John Watson, chief financial officer for ChevronTexaco, told industry analysts in November. “The reality is, it’s difficult to do that with the kinds of reservoirs that we have today.”
Most of the nation’s gas production comes from mature fields, making it even more important that companies find new reserves to replace what they’re taking out of the ground. But there, too, the United States seems to be falling short, said the Energy Information Administration. Reserve replacement dropping Reserve additions averaged 107 percent of annual production from 1994 to 1997, the federal agency said. The gas shortage and price spike of the winter of 2000-2001 led to increased drilling and a 152 percent reserve replacement rate in 2000. But since then the rate has fallen each year, dropping to 118 percent in 2002.
The largest gas producing state is Texas, which supplies about 21 percent of North American production — about equal to the combined flow from Louisiana, Oklahoma, Wyoming and New Mexico.
And while domestic gas production has climbed just 1 percent since 1996, the combined flow from African, Middle East and Asian Pacific nations has jumped more than 40 percent to overtake the United States in production.
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