US Natural Gas Industry Sees Supply Pinch
March 13, 1998 5:39 AM EST
By Joseph Silha
HOUSTON (Reuters) - Despite a two-year rise in drilling activity in the Gulf of Mexico, industry analysts warn the discovery of new reserves of natural gas is not
keeping pace with rising U.S. demand.
As demand increases in coming years, producers will likely be forced to look deeper for supplies or turn more to Canada to meet the shortfall, industry analysts and
officials said this week.
''We're not replacing reserves. We're drilling more wells, but we're not showing a net benefit,'' Gregory Shuttlesworth, managing director with PIRA Energy Group,
told participants at GasFair, an industry conference held here.
The number of rigs searching for natgas in the United States increased nearly 30 percent last year, while gas production rose 1.2 percent to just more than 19 trillion
cubic feet (TCF).
At the same time, U.S. gas consumption edged up slightly to about 22 TCF, leaving a three TCF gap that in the short run must be filled by tapping gas from
underground storage facilities and boosting imports from neighboring Canada.
While production from shallow, offshore Gulf of Mexico fields has been flagging, Shuttlesworth noted deepwater fields were starting to yield better results.
''In deepwater, we've had some pretty impressive reserves, but it's an extremely difficult frontier. There's a lot of expenditure,'' he said.
Cynthia Quarterman, director of the U.S. Minerals Management Services (MMS), said technological advancements have lowered exploration and development
costs and helped companies like Shell Oil and Amoco Corp open up Gulf of Mexico fields at depths of 5,000 feet or more.
Analysts said the volume of natgas from such deepwater fields could amount to as much as three billion cubic feet-per-day (BCFD) this year, up sharply from about
2.2 BCFD in 1997.
''The deepwater Gulf (of Mexico) promises to be a significant area for exploration and production. The last four (government) lease sales in the central and western
Gulf were record breaking,'' Quarterman said.
Industry officials said increased imports from Canada also will help close the supply gap despite flat growth last year, when fields were already flowing at near
capacity.
''There's a significant price differential between Alberta and the Midwest which has helped drive exports. Gas is looking for the highest priced market,'' said
Terrance Rochefort of Canada's National Energy Board (NEB) in Calgary.
Canadian exports to the United States last year held steady at about 2.8 tcf, or 13 percent of U.S. consumption. That rate has nearly tripled in 10 years, but
Canada, too, has seen a significant decline in its reserves-to-production ratio, leaving some concerned there will not be enough gas to fill new pipelines now in the
planning stages.
Rochefort said there were several major line expansions planned over the next one to two years that will move more Canadian gas to the U.S. Midwest and
Northeast.
Some of the biggest are:
-- Northern Border's expansion from Alberta to Iowa designed to move 900 million cubic feet per day (mmcfd), and a line from Iowa to Chicago designed to move
650 mmcfd. Both are targeted to start operation in late 1998.
-- Viking Voyageur, a joint venture between TransCanada Pipelines, Northern States Power and Northern Illinois Gas slated for late 1999, is designed to deliver
up to 1.3 bcfd to Chicago.
-- Alliance Pipeline, whose partners include IPL Energy, Fort Chicago Energy Partners, Coastal Corp, Westcoast Energy and others, will ship 1.3 BCFD to
Chicago from northern British Columbia starting sometime in 2000.
-- In eastern Canada, the Maritimes and Northeast Pipeline, a joint venture of Duke, Mobil and Westcoast, will ship about 440-460 mmcfd of production from the
Sable project off Nova Scotia to Canada's eastern provinces and New England.
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