Gas Prospects Bullish 100 Years
by Jeff Share/Editor
Pipeline & Gas Journal, January issue
One of North America's leading energy executives says he is "very bullish" on natural gas prospects throughout the world for the next century.
Brian F. MacNeill, president and chief executive officer of Enbridge Inc., told attendees at the Ziff Energy Group conference on North American Gas Strategies held in Calgary recently that the long-term outlook for natural gas market growth is "excellent" not only in North America, but worldwide.
"It's clean burning, versatile and inexpensive relative to other fuels. In major population centers of the United States it's underutilized. In western Canada, it's plentiful, relatively cheap and easy to recover," he said, noting that in Ontario for instance, residential customers pay $6.75 a gigajoule for natural gas, compared to $9.25 for fuel oil users and $23 for electric users.
"There is also a unique convergence of political, economic, technological and social developments that clearly favor natural gas as the fossil fuel of the future. In fact, just as oil has fueled growth and commerce for the past hundred years, I believe natural gas will be the growth fuel of the next century."
Western Canadian producers are in a prime position to bring gas to these markets because the Western Canadian Sedimentary Basin (WCSB) is one of the world's most abundant and economical sources of natural gas with access to an existing and growing delivery infrastructure, including the US$3 billion Alliance pipeline now under construction, he said. In 1996, the WCSB had development costs averaging under 50 cents per Mcf compared to over 75 cents per Mcf in most regions of Texas and Louisiana.
The WCSB is a relatively immature basin with more than 200 Tcf of ultimate recoverable conventional gas reserves, the largest remaining potential of any petroleum basin in North America. The basin has seen about 25 percent of its recoverable reserves exploited to date, compared to 45 percent for the continental U.S., MacNeill said. He estimated that a 1.5 percent annual increase in gas drilling is needed to achieve current supply forecasts. Gas prices are now high enough to warrant an increase in drilling, he said.
"When (1.3 Bcf/d) Alliance comes onstream next year, Western Canadian producers will need to supply sufficient deliverability to meet the needs of and sustain the market growth that we know is developing. If they don't, alternative sources of supply will be sought."
"There is room to grow and there's a tremendous gas potential available in the West to ensure sufficient market supply well into the future," he said. But Western Canada will face significant competition, especially in the short term, in the U.S. Southeast, primarily from the Gulf of Mexico, where both shallow and deeper waters have a combined potential of 280 Tcf, he said.
There are stumbling blocks that could delay or even decrease the growth, demand and acceptance of natural gas as "tomorrow's fuel," MacNeill acknowledged. They include outdated technology and old attitudes such as a regulatory environment that won't allow pipelines in Canada to earn the same rate of return on equity that pipelines in the U.S. can generate, thus penalizing Canadian pipelines when they have to go to international capital markets.
Paul Ziff, CEO of Ziff Energy, noted that gas prices in western Canada are the strongest they've been since deregulation almost 15 years ago.
"From the price depths of 1995, the prices received by Canadian producers have more than doubled. This compares to New York NYMEX prices which are up 40 percent. In fact, the Canadian prices are so strong that the basis differential has been compressed to well below the average cost of transportation, and especially the cost of new projects," he said.
In the 700 MMcf/d recently added in the Northern Border expansion, TransCanada's 400 MMcf/d expansion, and the Alliance project, Canadian drillers are stepping up the pace to fill those pipelines, Ziff said. Results show that 1999 will be the record year ever for Canadian gas completions, 5,900, at least 10% higher than 1994 peak, and next year will be higher still, he said.
Ziff also cautioned his audience not to overlook competition from the coal and nuclear sectors.
"These huge U.S. industries have not just rolled over and died. In fact, contrary to most forecasts, the nuclear industry is just about reaching for record output and like the gas sector, there are a large number of aggregators who are settled under various U.S. nuclear plants and achieving new efficiencies."
"The coal industry supports a number of producing states and many hundreds of thousands of workers. Surely coal will not be able to compete with new cogen plants, however, there remains large underutilized capacity for the existing coal plants. The coal industry has reduced SO-2 emissions from the 1970s peak by over half and is actually ahead of Clean Air Act standards." |
