North American gas demand faces a bright future, but determining the mix of supply sources that will meet that demand remains a big question for the region's natural gas industry.
A wide array of such scenarios were put forth at a Ziff Energy Group seminar in Calgary late last year.
EIA viewU.S. natural gas consumption will reach about 32 tcf by 2020, with Canadian imports bridging most of a 5 tcf supply/demand gap, according to the U.S. Energy Information Administration. EIA Administrator Jay Hakes said that Canadian gas imports are expected to grow to 4.9 tcf/year from a current 2.9 tcf. The EIA view holds that:
- U.S. production in 2020 will be about 27 tcf, with the largest share of increased production coming from conventional and unconventional onshore Lower 48 reserves.
- U.S. reserves additions are expected to peak about 2010.
- Much of the increased demand will be triggered by gas-fired electric power generation. Electricity will go from fourth on the gas consumption list now to first by 2020. An estimated 1,300 new electrical generating plants will be built, 1,100 of them gas-fired.
- Gas will win over coal as the preferred fuel for electrical generation, because the former's capital, maintenance, and operating costs are lower.
- Commitments to the Kyoto agreement on emissions reductions will be a factor in gas forecasts and future consumption. It is uncertain at this point how much effort will go into reducing emissions and the role to be played by credit purchases from other nations.
NEB viewTerry Rochefort, of Canada's National Energy Board (NEB), said there is no reason to believe a shortfall in Canadian gas deliverability is imminent. He said no one can say with absolute certainty that Canadian producers can deliver enough gas to meet increasing domestic and export demand.
Rochefort said the Canadian upstream sector is healthy and competitive, and analysts believe it can support rising production. He noted that, over the years, reserves estimates for the Western Canada sedimentary basin (WCSB) have consistently risen, and there is a history of estimating on the low side. Rochefort said other issues include the capacity of the U.S. market to absorb Canadian heavy oil production and the impact of electricity restructuring on pricing, power generation fuel mix, and electricity market flows.
The NEB official said recent estimates by various groups for ultimate gas potential of the WCSB range from 273 tcf to 329 tcf, with a preliminary estimate by the NEB of 263 tcf, recently updated from 1994 and 1996 figures. Alberta accounts for most of the gas potential, with an estimated 200 tcf.
Estimated ultimate conventional marketable gas reserves for Canada as a whole are 591 tcf. That includes 263 tcf in the WCSB, 69 tcf in the Beaufort Sea, 94 tcf in the Arctic, 18 tcf on the Scotian shelf, and 147 tcf in other areas.
Rochefort said the NEB expects to publish a new supply/demand study for all energy commodities to 2025 in mid-1999.
MMS viewPulak Ray, chief geologist for the U.S. Minerals Management Service, said the deepwater Gulf of Mexico is still an emerging basin but will play a key and growing role in overall U.S. reserves. Present deepwater E&D activities are strong, and significant reserves additions are also expected from shallow-water subsalt plays as the subsalt is explored, he noted.
Ray said that current trends in the gulf indicating a continuing increase in activity include:
- Gulf lease sales during 1996-98 have set records for number of bids.
- Many undrilled leases are set to expire by 2001.
- Rig day rates in the gulf have increased 128% since 1991.
Environmental concernsPeter Robertson, president, Chevron North America Exploration & Production, said environmental concerns and climate change considerations have positioned gas favorably among energy alternatives. Despite this, a key challenge will be how well producers synchronize supply with demand.
Robertson said power generation will account for the largest part of gas demand growth and is forecast to increase to 33% of market share from a current 13% of total U.S. gas consumption by 2010. Even if gas demand from other sectors remains constant, Robertson said that an additional 7 tcf/year of gas would be required by 2020 for power generation alone, and overall consumption patterns would change dramatically. The magnitude of the potential market in electrical generation is indicated by electricity sales of more than $200 billion in 1997, compared with natural gas sales in the same year of about $60 billion.
Supply prospectsOn the supply side, Robertson said, the U.S. and Canada are rapidly becoming an integrated market, with more than half of Canadian gas production now going to the U.S. Mexico, he said, may join in during the new millennium, on both the supply and demand sides. Robertson said that, if according to some forecasts, U.S. demand approaches 30 tcf/year, around 2010, additional supply will be needed from all sources. Increasing production to 30 tcf calls for an average increase of 2.5%/year. He predicted that:
- The deepwater Gulf of Mexico will likely show the biggest supply increases, with growth of 2 bcfd in the near term and as much as 10 bcfd in 10 years.
- The gulf shelf will continue to be an important area and is holding its own in production because of technical advances such as 3D seismic and horizontal drilling.
- Texas, the Rockies, and Western Canada will play important roles, and Eastern Canada shows great promise and will become more of a pivotal player in gas as the offshore industry grows.
- Economics will ultimately determine gas production, and history shows prices generally settle in the range of $1.65-2.25/Mcf. That limits the pool of economically viable reserves, except that new technology does improve economics.
Robertson said technology developments are expected to add 30% to gas production growth in the future. He believes the gas industry will find ways to meet future demand. But, he said, it will require setting long-term objectives and implementing consistent strategies, despite short-term price volatility and transportation bottlenecks.
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