North American gas supply, demand changing

A new supply and demand pattern for North American natural gas will emerge after another 18 months of price volatility.

That's the forecast of Ziff Energy Group, Calgary.

"Until late 1998, when the first pipeline expansions come on line to deliver higher volumes of Canadian gas, U.S. gas consumers and marketers will not be able to look north for an answer to the squeeze that has produced volatility in U.S. natural gas prices since 1996," Paul Ziff, the company's president, told attendees at a recent conference in Houston.

Despite strong drilling, last year's U.S. reserve replacement rate was just 85%, Ziff noted (see related article, p. 22). This will place continued pressure on prices, he said, because "the current U.S. supply and transportation structure is fully called upon to meet virtually the entire increase in U.S. demand in 1997 and most of 1998."

New supplies ahead

New supply coming on stream in the Gulf of Mexico, off Nova Scotia, and in western Canada and the U.S. Rocky Mountains could result in more than 8 bcfd in new supply, or roughly 13% of current U.S. consumption, Ziff said.

A wide variety of new transportation projects has been proposed in both the U.S. and Canada to ship gas to midwestern U.S. markets, with much of the supply then trans-shipped east to the northeast and mid-Atlantic portions of the U.S.

All told, about 9.55 MMcfd of pipeline capacity expansions are planned outside the Gulf of Mexico.

In gulf region states, another 4.66 MMcfd of expansion projects are on the drawing boards to take advantage of expanding production.

Steve Cropper, president and CEO of Williams Pipe Line Co., told the conference that successful delivery of the new supplies to deregulating retail markets in the U.S. Northeast and mid-Atlantic states could save consumers more than $10 billion per year, roughly twice the amount saved by deregulation of the telecommunications industry.

Challenges

The speakers agreed that many challenges must be met, despite interest in building new capacity.

Among them are getting long-term producer commitments to transport gas-something shippers from the gulf have traditionally been unwilling to provide. Another key challenge is continued cost-cutting to keep gas prices competitive.

If the industry meets the collective challenge, Ziff predicts North American gas demand could rise by about 2.5 tcf during the next 5 years, or roughly 10% from today's levels.

This will spur further consolidation in the gas marketing sector, Ziff predicted, resulting in a "limited number of continental, mega, multi-fuel energy marketers, complemented by regional marketing specialists."