North American natural gas supply options focus of debate

North America's natural gas industry continues to look to a range of alternatives to meet the challenge of supplying a potential 30 tcf U.S. gas market early next century.

That was the main focus of a seminar sponsored by Ziff Energy Group, Calgary, in Houston, last month. A similar program, sponsored by Canadian Energy Research Institute, was held in Calgary this month (see story, this page).

At the Houston seminar, Ziff also disclosed results of a survey of the North American natural gas market outlook (OGJ, Apr. 26, 1999, Newsletter).

Ziff Energy CEO Paul Ziff said, "As you can tell from the survey results, the single most controversial issue to the industry today is gas supply. The U.S. Department of Energy has launched a major initiative through the National Petroleum Council to study the prospects (for North American gas), and they expect to be reporting towards the end of the year."

U.S. gas decline

Enron Oil & Gas Co. Chairman Forrest Hoglund noted the flattening curve in the profile for U.S. gas production. "If you look at U.S. dry gas production, it really has been flat over a 5-year period-right about 18.8-18.9 tcf (annually)ellipseand that was even with increased drilling. I think most people's expectations were (that) when the rig (counts) went up, you were going to have supply go up, and (that) really (didn't) happen," he said.

Analyzing the supply problem boils down to scrutinizing drilling rig count decline rates, which often have a 6-9 month lag time before affecting production levels, he said.

"We've actually started showing some of this (production decline) about 11/2 years ago, and a lot of people now are talking about the effect of these increased decline rates in the major basins, so it's a little more of a credible story now," he said.

The U.S. annual production decline rate accelerated to 23% in 1998 from 14% in 1990, said Hoglund: "The difference between 23% and 14% means you need to have 50% more production coming on in new wells each year, just to stay flat on production."

Deepwater gulf

Industry will have to look to the deepwater Gulf of Mexico to offset natural gas production declines elsewhere in the U.S., said Robert Strode, senior vice-president, exploration and land, with Vastar Resources Inc., Houston.

"(Gulf of Mexico) shelf production has remained at a 10-12 bcfd plateau for close to 20 years," he noted. Strode said, however, that the gulf's total potential is "significant."

"Total (U.S.) undiscovered resources-using current technology-are 471 tcf, 85 tcf of which is economically recoverable, and, with future advances in technology, the estimate is 487 tcf, with 255 tcf considered economically recoverable. About 28% of the 255 tcf is in the Gulf of Mexico," he said.

Production from the shelf is being driven by the size of the resource base, advances in technology, and the short-term price of gas, but in the deepwater area, the most important consideration remains the long-term price of gas, because bringing production on line there can take 6-12 months.

"On the shelf, steeper (production) declines are being seen, and, even if we have full rig utilization on the shelf, we still see it unlikely to arrest declines," he said. "And as you move into deep water, we see a very large resource, steady supply growth, long lead times, and long-term oil prices impact(ing) production."

Pipelines' role

Pipeline technology will play a crucial role in the North American natural gas supply dilemma, contends Canada's National Energy Board Chairman Ken Vollman.

"I think, from a Canadian perspective, the challenge that we have in terms of gas supply is that we're farther from most of the markets, and (certain basins) are extremely far from markets, soellipseI think the main advances in technology that will affect Canadian gas supply will be in pipelining.

"Most of our pipelines in North America operate (at) 800-1,200 psig. The Alliance pipeline is going to operate at over 1,700 psig," said Vollman. And this is significant, considering how rapidly costs decline as more molecules are packed into those pipelines, he said.

"As we move farther north, I think 1,700 psig is just the next step. What I'm talking about here really are advances in steel-making practices, which allow us to use those higher pressures in pipelining. As we move north, I think it's already fairly well accepted that those pipelines might operate at 2,200-2,500 psig. That has a very dramatic effect on transportation costs over long distances."