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Arctic gas plus LNG imports could supply 25% of North American demand by 2025 Industry study concludes U.S. will need conservation, new supplies to avoid price spikes Allen Baker Petroleum News Contributing Writer
North America’s gas glut won’t return, nor will prices slip back below about $3 per thousand cubic feet, an industry study says, providing some assurance that Arctic pipeline builders can get their money back once gas starts flowing.
“North America is moving to a period in its history in which it will no longer be self-reliant in meeting its growing natural gas needs,” says the 120-page report from the National Petroleum Council released Sept. 25.
Even with gas from both the Mackenzie Delta and the North Slope, liquefied natural gas from overseas will provide 14 to 17 percent of U.S. gas supplies by 2025.
Traditional North American producing basins can supply only 75 percent of future demand, even with increasing contributions from coalbed methane and the deepwater Gulf of Mexico, the report concludes.
To avoid dizzying price swings, the government will have to push substantial advances in conservation, and also move aggressively to encourage fuel-switching capabilities for utilities and industries using natural gas, the report suggests. $1 trillion on the line “A balanced future that includes energy efficiency, immediate development of new resources, and flexibility in fuel choice, could save $1 trillion in U.S. natural gas costs over the next 20 years,” according to the report. “Public policy must support these objectives.”
The National Petroleum Council analysis shows North American demand could reach about 32 trillion cubic feet of gas annually by 2025. Current consumption is about 22 tcf.
As for prices, they could range from about $3 to more than $7 per million British thermal units at the Henry Hub. That depends on how successfully the nation dampens demand through conservation and encourages additional supply from areas outside the traditional gas basins.
No more $2 gas is in America’s future, the report indicates, and unless there are major efforts to increase efficiency, prices won’t drop much below $5 per million Btu either.
Industry’s uphill battle Gas wells in current producing areas are on the decline, and that trend will continue, based on a study of performance over the last 10 years.
Technologies for finding gas have certainly improved, and industry efforts have increased. But it’s an uphill battle as each new well produces less, on average, than the one before.
“Initial production rates from new wells have been sustained through the use of expanding technologies; however, production declines from these initial rates have increased significantly, and recoverable volumes from new wells drilled in mature producing basins have declined over time,” the report notes.
The study looked at the results when drilling doubled in 2000 and 2001, finding that “the supply response was less than 5 percent of Lower 48 production even with a doubling of rig activity.” Production levels fell quickly when rig activity was scaled back.
Each year, existing wells decline by 25-30 percent. So new wells must make up that volume before there’s any growth. That’s a tough order.
The number of nonconventional wells, such as those tapping coalbed gas, are increasing as flow from conventional wells dwindles. The shallow coalbed methane wells require less drilling time, but their production also tails off more quickly.
“Even in a robust future price environment,” the study says, “industry will be challenged to maintain overall production at its current level.”
Boost for conservation The nation will need to conserve more and industry will need to increase its flexibility to switch to alternate fuels if serious supply problems are to be avoided, the report says.
Even so, some industries that are heavily dependent on natural gas, such as producers of fertilizer, methanol, and petrochemicals, will close down North American facilities in favor of plants overseas, where gas costs less. That will mean the loss of American jobs, the National Petroleum Council notes, but it will moderate gas demand somewhat. Natural gas currently supplies some 40 percent of all primary energy for industries, as well as 19 percent of U.S. electricity.
The study was requested by Energy Secretary Spencer Abraham in March of last year to update a 1999 analysis. The National Petroleum Council committee responsible for the report was chaired by William A. Wise, retired head of El Paso Energy Corp., and later by Bobby S. Shackouls, CEO of Burlington Resources Inc., who succeeded Wise in May. Other top executives involved in the committee included Lee R. Raymond of Exxon Mobil Corp.
The National Petroleum Council dates back to 1946, when President Harry S. Truman suggested it could follow up on the efficiencies produced by industry-government coordination during World War II. The council itself now has about 150 members from the oil and gas industry, ranging from Raymond of ExxonMobil to Jacob Adams of the Arctic Slope Regional Corp. in Alaska.
Ending the offshore drilling bans and reducing the restriction in the Rockies could add 3 billion cubic feet daily to U.S. supply, the council calculates, or somewhere between 4 and 5 percent of consumption.
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