North American producers are not yet on track to meet earlier expectations that new natural gas supplies from Canada, the Gulf of Mexico, and nonconventional US land sources will accommodate a US natural gas market of more than 30 tcf by 2015, said a panel of industry experts Apr. 19.
In 1999, the US Energy Information Administration was projecting that gas production from the Gulf of Mexico would grow to 18 bcfd by 2005. But in reality, gulf producers will struggle to produce 12-13 bcfd of gas in 2004 and are not likely to add another 5-6 bcfd within a year, said David Trice, CEO of Houston-based Newfield Exploration Co. at a 2-day North American natural gas strategies conference that opened Apr. 19 in Houston. That conference was presented by Ziff Energy Group of Houston and Calgary.
Production decline
Since first quarter 1998, gas production from the gulf's continental shelf has registered a dramatic decline of 8-10%/year. "Gulf of Mexico production has been sustained only in part by the pretty dramatic success in bringing on projects in deep waters," Trice said.
Drilling activity in the gulf dropped in 2002 and again in 2003 despite gas prices near $6/Mcf, which signals "diminished opportunities on the shelf," he said.
Meanwhile, Trice said, "We're clearly pushing everything we do harder and harder in this industry today."
"It's a very exciting time to be in the North American natural gas business, particularly in the Rockies," said Richard Morrison, vice-president of BP PLC's western US onshore operations. The Rockies are one of the few production growth regions left in North America. "Only the Rockies, deepwater Gulf of Mexico, and the Western Canada Sedimentary Basin have managed to grow production over the last 10 years," Morrison said.
"We tend to talk about the Rockies region, but it's actually the story of many basins," he said. Combined output from 12 primary Rockies basins—Williston, Powder River, Big Horn, Wind River, Thrust belt, Green River, Denver-Julesberg, Uinta, Piceance, Paradox, Raton, and San Juan—"has doubled in little more than a decade, from about 6 bcfd to 12 bcfd," said Morrison.
Still, production gains in such prolific areas as the Green River basin in Wyoming alone "absolutely will not" close the gap between decreasing US supply and increasing demand for gas, said J.R. Justus, manager of US onshore assets for Shell Exploration & Production, part of the Royal Dutch/Shell Group. However, he said, "That gap will get closed one brick at a time. What's happening in the Green River basin can be a pretty significant brick in that wall."
Morrison noted that 80% of the resource base in the Rockies "is nonconventional—tight gas, coalbed methane, and shale." Moreover, he said, "The technical and nontechnical challenges of finding and producing these resources are really going to drive the price of supply and the production outlook for the region."
Morrison sees "a really strong correlation between gas price, activity measured by the number of wells drilled, and production. Back in 1990, when the price was in the $1.25[/Mcf] range, less than 1,000 new wells were added to this area. When the gas price broke $3/Mcf, the number of [new] wells exceeded 5,000." Higher prices for Rocky Mountains area gas also sparked a significant increase in pipeline infrastructure and capacity, allowing that gas to reach markets "that pay more of the Henry Hub type of prices," he noted.
Nonconventional switch
Meanwhile, major producers are switching their investments from conventional oil and natural gas operations in western Canada to nonconventional resources, particularly to development of Canada's tar sands and oil sands, "to the tune of $6 billion/year," said Paul Ziff, CEO of Ziff Energy Group.
"Canada supplied most of the growth [in gas supplies] to the US for a 15-year period," Ziff said. But now western Canada has reach maturity "in terms of smaller discoveries, lower initial productivity, lower [number of well] completions, and smaller reservoirs," he said.
As a result, Ziff said, "Drilling actually has tripled during the last 5 years in Canada without much of an increase" in production.
Therefore, most industry forecasts are "for very slight growth or modest decline" in production in western Canada.
With Canada's own demand for natural gas growing, said Ziff, the result will be "a modest decline" in US imports of Canadian natural gas, exacerbated by increased US exports of conventional gas supplies to Mexico.