The two biggest challenges to increasing North American natural gas production are access to prospective land and availability of adequate drilling services, according to a survey by Ziff Energy Group, Calgary.
Ziff released the survey at its North American Gas Strategies conference in Houston last week. Representatives from 97 North American companies participated in the survey, representing producers, end-users, marketers, pipelines, storage operators, and local distribution companies. The survey was conducted in February and March 2001.
Paul Ziff, Ziff Energy CEO, said, "Our survey is designed to provide an integrated description of the outlook for the North American gas industry from wellhead to burner tip. Over the 3-year period [that] we have conducted this study, the change in expectations and issues is remarkable."
Challenges
Last year, low gas prices were listed as the biggest challenge. This year, 65% of the survey's respondents expect that the average 2001 New York Mercantile Exchange futures price will be $4.50-6/MMbtu.
Meanwhile, 97% said gas prices must exceed $3/MMbtu to provide sufficient economic incentives to increase North American gas production.
Price volatility was listed as the third biggest challenge to increased gas supply during the next 5 years, the survey said. Other challenges were environmental regulations and availability of gas processing and transportation capacities. Concern about slowing growth in gas demand was listed as the sixth and lowest concern.
Panelists speaking at the conference said they also consider access to capital to be a major challenge to increased North American gas supply.
Terry Rochefort, business leader of commodities for Canada's National Energy Board, said, "I think, in the short term, the biggest challenge to supply growth is probably the investment needed and the money available to do the exploration." He agreed with the survey that access to drilling services also is important, adding that Canadian drilling contractors have told him that they are drilling flat out.
William L. Transier, Ocean Energy Inc. chief financial officer, said, "The upstream side of the business will need a large influx of capital. Over the last 3 years, those of us in the business have watched many investment dollars flow into the dot-com and the technology sectors. Now that that market has become disenchanted with the lack of earnings of internet businesses, [exploration and production] companies have to attract those investors back to them. That will take a strong commodity marketplace and higher earnings on our part."
Oil and gas companies must manage their financial performances better and must refrain from chasing production for production's sake, he said, adding that an economic downturn would pose the big- gest obstacle to the growing gas market.
Plans for 2001
A total 83% of respondents said that 13,000-16,000 new gas wells are necessary to maintain 2001 North American gas production at 2000 levels, which included 19 tcf in the US and 6 tcf in western Canada.
Of those responding to the survey, 81% expect 350-500 new gas wells will have to be drilled this year to maintain gas production in the Gulf of Mexico. The comparable figure for western Canada is 8,000-10,000 gas wells, respondents said.
Producer expectations for increased gas-directed spending are up sharply in the 2001 survey. More than half expect to increase their gas-directed spending by more than 20% compared with last year, when only 30% expected to increase gas-directed spending by more than 15%.
