An exhaustive National Petroleum Council study says natural gas can make a greater contribution to U.S. energy needs and environmental goals.
That's because gas can meet demand at competitive prices, it is clean burning, and it is a secure, mainly domestic energy source.
NPC, the secretary of energy's oil and gas advisory panel, was expected to approve the draft report at a meeting in Washington.
The study, which took 2 years to prepare, involved contributions from 200 persons in industry, government, trade groups, academia, and private enterprise.
NPC said estimates of gas resources should rise at least through 2010 from the present volume of 1.295 quadrillion cu ft technically recoverable in the Lower 48 states alone.
REQUIREMENTS, RESOURCES
Much of the groundwork needed to develop a more competitive and consumer oriented gas industry has been laid.
But NPC said, "Perceptions of natural gas that arise from its heavily regulated past represent the greatest challenge to be overcome by the industry.
"In particular, the industry must pay more attention to meeting customer needs through greater efficiency and more competitive services."
The report also said, "The natural gas resource base is abundant and can be produced and delivered at prices that allow expansion of the market and continued development of the resource.
Sufficient new supplies can be delivered at competitive prices, even though it will require sustained growth in prices to bring on the new production.
"The continued evolution of technology and energy efficiency improvements combine to reduce delivered prices below what they would have been without these advances and tend to mitigate the cost of developing more expensive supplies. With the proper emphasis on research and development, technology impacts in the future will be even greater than in the past."
NPC found the U.S. gas market to be increasingly diverse, with new challenges and growth opportunities in all market segments and several new technologies.
"New regulatory policies are encouraging competition," NPC said. "The natural gas industry is responding by providing additional value added services, flexible contracting options, and increased attention to customer needs.
"Sound management, operational mechanisms, contract diversity, and use of financial markets can work together to manage risk and reduce the short term volatility that is likely to occur as the industry moves through transitional phases."
But the report also said potential customers are concerned about industry's ability to deliver gas when and where it is needed, particularly during peak demand.
"Additionally, the industry does not have a good public image and has not been sufficiently effective at marketing natural gas, in spite of its inherent beneficial qualities, and has been overdependent on regulation for setting direction and resolving conflicts."
The study recommended federal, state, and local officials allow competitive market forces to continue to develop and work. And governments should exercise restraint during periods of price and supply volatility as the industry adjusts to the changing marketplace.
And it said industry needs to help the market work by accelerating technologies and procedures that reduce gas prices, promoting and commercializing new end use technologies, developing strategies for environmental issues, improving supply and delivery systems, and increasing customer focus in marketing.
SPENDING PRODUCTION
The study said the industry's exploration and production outlays have averaged $35-40 billion/year in 1990 dollars during the past few years, equal to the level of the mid-1970s but only about half the peak expenditure years of the 1980s.
If U.S. production increases to about 21 tcf/year by 2010, industry would need to invest about $60 billion/year during 2000-2010.
NPC warned increases in environmental regulation could rein production, and if incremental environmental costs exceed $30 billion, its estimates of production would be reduced nearly 20 tcf over the period.
it noted technology advancement has had a significant effect on supplies. "During the past two decades, technology advancement has reduced drilling costs by almost 3%/year below what they would have been in the absence of the advancing technology.
"The rate of technology advance appears to be accelerating, with more effect in the 1980s than in the 1970s."
That trend should continue.
NPC predicted Canadian gas imports will increase and may reach 3 tcf/year or more, but LNG imports will remain low and "price and demand levels appear to be inadequate for developing the Alaskan North Slope gas resources or the northern frontier gas in Canada for U.S. consumption prior to 2010."
The gas transmission and storage network can support the increased demand.
Although U.S. gas consumption peaked in 1972 at 22.1 tcf, the transmission and storage system has continued to expand due to geographic shifts in supply and demand. Today there are more than 280,000 miles of gas transmission pipeline and about 8 tcf of storage capacity.
The system had a capacity of 24 tcf/year and a peak capacity of 120 bcfd in 1991, well above consumption of 19.2 tcf/year and firm peak demand of 102 bcfd in 1991.
NPC expects a significant shift in gas supply and consumption patterns by 2010, which creates a need for construction of new transportation and storage facilities.
With the anticipated decline in production from the Southwest Central region, more transmission and storage capacity will be required to move gas from the North Central region and from Canada to neighboring regions and to move gas into the Northeast and California regions.
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