Paula Dittrick
Senior Staff Writer
HOUSTON, Dec. 16 -- LNG will play an increasingly important role in the evolution toward a global natural gas market, but major decisions and investments will have to be made to meet anticipated long-term gas demands, particularly in the US.
That was the consensus of consultants and industry representatives speaking at a recent gas conference cosponsored by the Houston chapter of the International Association for Energy Economics and the University of Houston Law Center & Institute for Energy, Law & Enterprise.
Simmons & Co. International Chairman and CEO Matthew Simmons of Houston said he believes that conventional US gas production has peaked, and that gas supplies are dropping.
Simmons & Co. surveyed 26 publicly traded gas producers who provide 55% of US gas supplies. On average, the survey participants reported that their third quarter 2003 production was 4.8% less than a year ago.
"The gas storm is still gathering," Simmons said. "The US economy is highly exposed to this crisis. . .. North American manufacturing is at risk unless the crisis is addressed."
US gas production
Brian Barrett, managing consultant of gas markets for IHS Energy, Houston, said he also believes that US gas production decline rates are steeper than many have anticipated.
"Demand growth, however modest, will outstrip domestic supplies without policy changes," Barrett said. "We've gone through the 'A' properties and we've gone through the 'B' properties [of conventional gas fields in the US]. There's not much left."
Meanwhile, LNG "is real today" and is competing against US supplies on a limited basis, Barrett said. "Looking ahead, even with the flurry of announced LNG projects, we're still likely short on long-term supplies."
Some hurdles must be overcome regarding LNG's emerging role in the US gas market, however, Barrett said. Specifically, he said the market needs a "mindset shift."
"Historically, LNG contracts are typically long-term fixed volumes, linked to oil or other indices. LNG market pricing is moving toward shorter terms today, with spot market trading in its infancy. Long-term fixed (set price) pricing in the US will be a difficult sell given the shift away from these contracts 10 years ago," Barrett said.
Market forces
ExxonMobil Corp. projects growth in worldwide gas demand during 2000-20 to average 2.4%/year compared with annual demand growth rates of 1.7% for oil and 1.5% for coal, said Scott Nauman, manager, Americas gas marketing for ExxonMobil Gas & Power.
LNG is essential for balancing supply and demand in North America, and "an explosion" is expected in world LNG trading, Nauman said. For instance, ExxonMobil statistics indicate that the world total LNG demand in 2001 was 14 bcfd, with North America accounting for less than 1 bcfd. The company projects 2020 world LNG demand at 55 bcfd, with North America accounting for 12 bcfd.
Large world gas reserves in the former Soviet Union and in the Middle East are far from the gas markets, creating massive infrastructure needs, Nauman said. But innovations in technology are reducing LNG costs.
For instance, researchers are studying the possibility of pressurized LNG that would allow companies to do things that they cannot do now with traditional cargoes. ExxonMobil is investing in high-strength steel that will allow long-haul pipelines to be more economic, Nauman said.
In response to a question from the audience, Nauman said he expects that future LNG receiving terminals will be built outside the Gulf Coast area. "It's a work in progress. I don't know where they will be," he said regarding future terminal placements.
Currently, the Gulf Coast provides the pipeline infrastructure that can transport gas to the northern or eastern US, but industry is considering the economic feasibility of locating receiving terminals closer to markets such as New York.
Northern gas supplies
Ziff Energy Group CEO Paul Ziff said western Canada and most US onshore and Outer Continental Shelf gas fields are facing maturity, and that new discoveries are smaller than in the past.
"There is little incremental supply in North America," Ziff said. "Mexico has an energy policy that is forestalling development. The US has no energy policy."
He called tight gas "the unsung story in the US. In Canada, it's fairly new." Coalbed methane also is promising as a gas supply source in the Western Canada Sedimentary Basin (WCSB), he said. WCSB already has 25 CBM pilot projects.
Meanwhile, drilling is not increasing Canada's conventional gas production, he said. East Coast development is promising, he said, referring to 8 tcf in proved reserves in Nova Scotia and 10 tcf in proved reserves in Newfoundland.
Calgary-based EnCana Corp. has asked regulators for a time-out on its Deep Panuke gas project off Nova Scotia while it studies the project economics. Panuke originally was slated to come on stream at 400 MMcfd of gas production in 2006 (OGJ Online, Feb. 14, 2003).
Mackenzie Delta gas could start flowing through a proposed pipeline as early as 2009, Ziff said, adding that he expects Alaska gas could be flowing through a proposed pipeline in 2013.
Nauman said he is optimistic that an Alaska gas pipeline will be built, but he said that it's impossible to predict its timing.
