Attention rises to gas supply questions in US

Oct. 7, 2004
Attention is rising to questions about supply of natural gas in the US.

By OGJ editors

HOUSTON, Oct. 7 -- Attention is rising to questions about supply of natural gas in the US.

In industry meetings and congressional hearings, the message is clear: With demand expected to rise, and with North American production unlikely to increase, the US faces a period of price volatility and the need for supply from new sources.

During a press briefing Wednesday in Houston, the incoming and outgoing chairmen of the Interstate Natural Gas Association of America described how issues of infrastructure and land access limit supply.

And in a hearing of the Joint Economic Committee of Congress, the chairman of Cambridge Energy Research Associates suggested measures the US should take to navigate what he called a "difficult market environment over the next few years."

Harold N. Kvisle, president and CEO of TransCanada PipeLines Ltd., Calgary, and outgoing chairman of INGAA, told reporters in Houston that the North American gas system isn't responding quickly enough to market shifts.

With gas consumption for electric power generation displacing industrial demand, pipelines and other infrastructure needed to move gas to new points of consumption are slow to develop because of permitting delays.

And with overall demand expected to grow well beyond North American production levels that apparently have peaked, slow permitting of LNG import terminals will create problems.

"This is very long-lead-time stuff," Kvisle said.

His successor at INGAA, Keith O. Rattie, chairman, president, and CEO of Questar Corp., Salt Lake City, said production problems in North America have more to do with restrictions on land access than with the gas resource.

"A lot of gas has been found, and a lot of gas will be found" if access limits ease, he said.

During the next decade, even as supply grows from imported LNG and a pipeline from the Arctic, the US will need new production from the Lower 48, Rattie added, noting that the industry faces a "massive communication challenge."

It must convince the public that it can supply gas without harming the environment and that the US is not running out of gas, he said. And it must convince policymakers that markets work.

Supplies stagnant
In Washington, DC, the CERA chairman, Daniel Yergin, said, "The reason we are in a crisis is not that demand has surged, it is that supplies are stagnant."

Production capacity probably will remain at current levels in North American and decline in the US, which raises dependence on LNG.

Now representing 3% of US gas supply, LNG could amount to 25-30% of supply by 2020, Yergin said. But LNG supplies won't be large enough to provide price relief before 2008.

"The challenge before the United States lies between now and the arrival of substantial new volumes of LNG on North American shores," Yergin said.

"To CERA, it is clear that, without measures to boost supplies or temper demand, the market is locked in a strong price environment." For what he called the "bridge period" of 2004-09, Yergin recommended:

-- Customer education and flexible gas procurement mechanisms by utilities.

-- Fuel flexibility for new and existing electric power capacity.

-- Resolution of the "mismatch between the short-term contracting bias of consumers and the need for longer-term commitments to underpin new natural gas infrastructure, such as arctic and LNG supplies."

-- Acceleration of gas production by streamlining permitting for activity in areas now open and application of "flexibility in areas with various restrictions for gas production."