Panel says US gas supply options require long term investments

Sam Fletcher
OGJ Online

HOUSTON, Sept. 25 -- North American suppliers can produce 34.8 tcf of the 35 tcf/year of natural gas that the US market is expected to need by 2020, but only by tapping into sources not yet being exploited, said an executive geologist at a Houston symposium.

That includes drilling coalbed methane deposits below 5,000 ft, deeper than are now being produced; developing sub-volcanic plays that are difficult to delineate with 3D seismic technology; and producing gas hydrate deposits, a frozen slush of gas and water formed by high pressure and intense cold on and below the ocean floor, said John E. Hodgin, executive vice-president of Ryder Scott Co. LP, Houston.

The US Gulf of Mexico, which has already produced oil and gas longer than any other offshore area in the world, will continue to be a major contributor of gas supplies in the future, said Hodgin at the North American Gas Supply Symposium, sponsored by the Center for Business Intelligence.

Offshore operations in the Lower 48 are expected to contribute 6.19 tcf/year of non-associated gas in 2020, with a growing proportion of those supplies being produced from deep waters of the gulf beyond 1,000 ft, he said.

Decline seen
But Jim Farnsworth, vice-president of North America exploration for BP America Inc., said development of deepwater associated gas would not stem a general decline of gas production in the gulf.

So far, the deepwater gulf seems to have a reserves base and discovery profile, measured in barrels of of oil equivalent, similar to what the industry found in the shallower waters of the Outer Continental Shelf during the last 54 years of exploration, said Farnsworth.

However, the gas-oil ratio of the two areas seems to be reversed. Natural gas accounts for 66% of the proven developed reserves on the shelf but 66% of the projected deepwater gulf reserves is projected to be oil.

Moreover, as the industry pushes into deeper waters away from the pipeline infrastructure on the shelf, more of that associated gas will be reinjected rather than brought ashore, especially when the industry begins using floating production, storage, and offloading (FPSO) units to produce deepwater oil, Farnsworth said.

Additional gas production capacity from deepwater discoveries is expected to peak at 4.7 bcfd, he said.

That means combined gas production from both the mature shelf and deepwater frontier can be sustained at 14 bcfd only through 2005 before production declines as a result of more rapid depletion of ever-smaller discoveries on the shelf, Farnsworth said.

Therefore, he said, "I'm telling my company to look elsewhere for future gas supplies."

Meanwhile, conventional onshore resources in the Lower 48 are expected to supply 11.38 tcf/year of the 35 tcf demand by 2020 said Hodgin, while unconventional domestic resources -- tight sands and shallow coalbed methane deposits of the type already being developed -- should add 8.51 tcf/year. Alaska is projected to supply 570 bcf/year of North Slope gas by 2020.

Gas supplies from those familiar US resources, including Hodgin's more optimistic projections for deepwater Gulf of Mexico, would be 26.7 tcf/year, far short of the projected 35 tcf of demand.

Canada is expected to remain a major exporter of gas to the US market in 2020. But while Canada's output is expected to grow, so will its own gas market. And that will cut into the additional gas available for export to the US, said Ronald J. Turner, executive vice-president of operations and engineering for TransCanada PipeLines Ltd.

LNG option
The US market therefore must find new suppliers to help fill the potential gap. One possibility is to increase imports of liquefied natural gas (LNG) from Trinidad, Venezuela, Algeria and elsewhere.

The US has four LNG receiving terminals, of which only Lake Charles, La., and Everett, Mass., are operating. Hodgin said the mothballed terminals at Cove Point, Md., and Elba Island, Ga., are expected to be on stream in 2003, with an aggregate sustainable capacity of 840 MMcf/year for all four.

In addition, he said, several LNG terminals are proposed, including two in Louisiana with combined capacity of 720 bcf/year, three along the Texas coast totaling 600 bcf/year, and one on Mexico's Pacific coast at 360 bcf/year, targeting the California market. Combined with the four existing terminals, they could increase the US capacity for LNG imports to 2.5 tcf/year by 2006, Hodgin said.

Other industry sources reported Mexico's Energy Regulatory Commission has received applications to build 10 LNG terminals, most targeting the US market. "The number of potential terminals is increasing daily," said one conference participant, "but gas prices will have to be $3.50/Mcf or more to support LNG."

With US gas prices now below $2/Mcf, LNG obviously is not the ultimate solution.

Stranded gas
The best bet for the US market, said Hodgin, is to tap into large stranded reserves of North American gas, including some 70 tcf in Canada's Mackenzie Delta and 236 tcf on Alaska's North Slope.

"Unlike virtually any other identified deposits of natural gas in the US, North Slope gas lacks a means of economical transport to major commercial markets," he said.

There are two competing proposals to build a pipeline to move that gas. Alaskan officials favor a route that would parallel the Trans-Alaska highway to enter Canada at the southwest corner of Yukon Territory.

But Canadians prefer an alternative pipeline from Prudhoe Bay field off the Alaska coast to Canada and down the Mackenzie Valley, opening Mackenzie Delta gas resources to development.

The first route would cost $7.6 billion and would deliver 2.5-4 bcfd of gas to US markets. The second route would cost $2.7 billion and would deliver from 0.8 to 1.2 bcfd, said Turner.

Either line would take 2 years to construct. But neither would get Alaskan gas to the Lower 48 until 2009 at a delivered cost less than $3/Mcf, said Hodgin. "Until market prices can be sustained above that level, it's not economic," he said.

Meanwhile, there are other stranded gas deposits that should be developed, including 21 tcf of deep gas on the West Coast, primarily in California, Hodgin said.

Presidential and congressional moratoriums have locked up 31 tcf of gas off the Atlantic Coast and some 24 tcf off western Florida. Another 29 tcf is in government controlled areas closed to development in the Rocky Mountains, along with some 108 tcf in restricted areas, he said.

Contact Sam Fletcher at [email protected]