There's no natural gas crisis, especially with spring almost here
Gary Lamphier
The Edmonton Journal
Monday, March 03, 2003
If you believe The Wall Street Journal, the U.S. is now facing such a crippling shortage of natural gas supplies that it could derail the recovery and plunge the world's most powerful economy back into recession.
"Effects of Gas Shortage Rip Through Economy," blared a headline in Friday's Journal.
"Once thought plentiful, the U.S. is now facing a shortage of natural gas that could last for years, and the impact is just beginning to ripple through an already ailing economy," the paper warned.
On the surface, the Journal's reasoning seems sound.
With cold winter weather over eastern North America driving natural gas prices above $8 US per million British thermal units -- roughly quadruple the levels of early 2002 -- the price spike is causing widespread pain. Jitters over terrorism and a possible war in Iraq have exacerbated the situation, driving crude oil prices to the highest levels in 12 years.
Result: petrochemical and steel producers are shutting plants. Debt-strapped consumers, who have kept the U.S. economy afloat, face soaring heating bills. And big industrial users of gas are boosting product prices to help cover their rising feedstock costs.
The immediate supply-demand picture isn't very reassuring, either. While gas consumption has grown steadily, production has flatlined or even fallen, as it did last year in the U.S.
Aging fields are being depleted and drilling activity has only recently begun to pick up after a dismal 2002. The explosion of royalty trusts has further dampened exploration activity in Canada.
At current production rates, Canada has just 8.5 years of natural gas reserves left, versus about 10.3 years for U.S. onshore sources, according to Calgary-based Ziff Energy Group.
Now, with natural gas inventories down to barely one trillion cubic feet, the picture does seem grim. No wonder gas prices are the crisis du jour.
Well, relax folks. We're not running out of natural gas, although production growth has been in a funk for a variety of reasons.
And while painful, the current price spike is not a first. We've been here before -- in late 2000 and early 2001, when prices topped the current lofty levels.
But prices slumped sharply thereafter, along with the U.S. economy. At the same time, a series of mega-mergers cut a swath through the oil and gas sector. That in turn reduced the number of players and put a lid on exploration and development programs while property portfolios were realigned.
All of which helps to explain why U.S. gas output declined in 2002 for the first time in some 16 years, and why producers are now scrambling to meet an unexpected upsurge in demand.
But the energy sector is notoriously cyclical. And if natural gas prices stay strong -- as most analysts expect -- that will trigger increased exploration and development, possibly in areas that are currently off-limits. Once again, reserves will begin to rise.
Moreover, the stats often cited as evidence of a natural gas supply squeeze tend to exaggerate the drawdown in inventories that occurs normally and predictably every winter, as demand reaches its peak (i.e., right about now).
Consider the big picture.
As the winter heating season approaches each fall, commercial storage facilities across North America are filled to capacity. So are private storage facilities, which aren't even reflected in the official inventory stats.
The capacity of these commercial facilities equals about nine trillion cubic feet of natural gas, including some 3.5 tcf of so-called "working inventory," and five to six tcf of "base" or "cushion" inventory, says Bill Gwozd, Ziff Energy's vice-president, natural gas.
As winter weather hits, the storage facilities draw down their "working" inventory. Right now, it stands at about one tcf, or roughly a third below the average level of the past five years. That's low, but it's hardly a crisis.
And it masks the fact that it's supported by substantial base inventory, some of which could be used if working inventory is totally depleted. "There isn't a magic number when you get to the end of the working gas," says Gwozd.
"You still have lots of inventory in your tank."
So relax, folks. There is no natural gas crisis. Spring is almost here. And with it should come relief from current high prices.
glamphier@thejournal.canwest.com
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Looks like we can go to zero working gas and still be OK, according to this guy. This conflicts with your comments Jim, and also conflicts with what I understood to be the case.
What's the right answer here folks? |
