|
Continental gas at a crossroads Some worry about shortages in North America; others look to untapped plays Gary Park Petroleum News Calgary Correspondent
With North America’s gas industry at a crossroads, experts are trying to figure out whether a supply crunch could erode the U.S. and Canadian economies or whether help is on the way.
Some say gas price volatility is inevitable and the supply picture is grim; others believe the doom-and-gloom forecasts are premature.
For the immediate term, supply is the overriding concern at a time when demand is recovering, fuel switching from gas has been less than expected and imports of liquefied natural gas can only pick up part of the slack in domestic gas production, said Martin King, an analyst with FirstEnergy Capital.
Speaking to an East Coast Canadian energy conference Feb. 26, he forecast “essentially flat” North American supply in 2004, even allowing for a minor gain in Canadian coalbed methane to 100 million cubic feet per day this year and 150 million in 2005.
King predicted a drop of 55 million cubic feet per day in net gas supply from the Western Canada sedimentary basin, despite the completion of 13,822 wells this year.
In the United States, a three-year decline in production appears to be continuing, with gains in the Rocky Mountains offset by losses in Louisiana, Texas and the Gulf of Mexico, he said.
He said U.S. domestic supply is heading for a decline of 1.45 billion cubic feet per day this year, while net Canadian imports will drop by 500 million cubic feet.
Import capacity at the four LNG terminals in the United States is currently 2.4 billion cubic feet per day, rising to 3 billion this year and 4 billion in 2005, King said. Speculation on economic harm from gas shortage That outlook has caused people such as Alan Greenspan, chairman of the U.S. Federal Reserve Board, to speculate that a natural gas shortage could do severe harm to the North American economies.
King said gas prices could be just as volatile as last spring and perhaps worse, with FirstEnergy making a “conservative” NYMEX price forecast of US$5 per million British thermal units in the second and third quarters, easing to $4.75 in 2005 and 2006.
High gas prices have already caused a resurgence of construction of coal-fired power plants in the United States, said Loren Cox, an energy researcher at the Massachusetts Institute of Technology.
He told a Canadian Energy Research Institute gas conference in Calgary March 2 that two coal-fired plants — one of 4,900 megawatts and one of 11,000 megawatts — are in early development stages and will be the first to be built in the United States in a dozen years.
Even in Alberta, which has Canada’s largest coal deposits, coal could be a serious threat to long-term gas demand, Cox said.
The big gas supply hopes are pinned on frontiers such as the offshore, North Slope and Mackenzie Delta gas, the ultra-deepwater Gulf of Mexico, unconventional supplies from tight gas and coalbed methane and LNG imports. Will market be able to support high-cost mega projects? In the interim, it is not clear how much hardship consumers will face and whether the market will be able to support the high-cost, mega-projects, said Paul Mortensen, the Canadian Energy Research Institute’s director of gas supply.
A gas shortage has serious implications for employment and industrial growth, especially for industrial gas users who have not invested in the most efficient technology and the latest infrastructure, he said.
On an upbeat note, Mike Godec, vice president at Virginia-based consultant Advanced Resources International, told the Canadian Energy Research Institute conference there is too much haste in leaping to supply-and-demand conclusions.
He argued that not enough allowance is being made for the type of exploration under way.
Bolstered by record high commodity prices, he said E&P firms have the financial backing to start tackling deeper gas targets, which hold the best hope of large new reserves. First signs of shift to U.S. tight sands Godec said there are the first signs of a shift in the United States towards tight sands, which the U.S. Energy Information Agency calculates represent 35 percent of U.S. recoverable gas resources, but which have been widely shunned because of costly technical challenges.
In the tight gas realm, Devon Energy has boosted reserves in its east Texas play to 20 trillion cubic feet from 1.4 tcf in 1999 as recoverability methods have been improved, while EnCana’s Cutbank Ridge play in northeastern British Columbia holds the promise of yielding 400 million cubic feet per day over several years.
Godec said that provided companies can keep costs under control and have the courage to stick with opportunities, continental supplies can be increased.
Peter Tertzakian, chief energy economist at ARC Financial, told the Canadian Energy Research Institute conference March 2 that there is a shifting emphasis in the Western Canada sedimentary basin as companies try to capitalize on high prices by spending more on drilling in mid-range depths from about 3,300 feet to 9,200 feet.
That follows an intense period of shallow drilling in Western Canada, when mid-range wells shrank to 22 percent of the total from 40 percent in 1996.
As shallow prospects start to decline and the basin’s reserve life index drops towards eight years, the industry is attracted back to opportunities that hold the potential for larger finds, he said.
| 