The magical 30 Tcf annual natural gas market goal is very much arealistic prospect on the demand side, but much more problematicfrom a U.S. supply perspective, according representatives of largeand small producers addressing a national meeting of stateregulators this week.

Despite a general bullishness about natural gas demand andprices, the producers face some significant supply hurdles,including accessible drilling targets and high enough prices todraw sufficient investment capital. They argued for opening up morepublic lands in North America. One regulator attending the NationalAssociation of Regulatory Commissioners’ (NARUC) summer meetings inSan Francisco questioned the need for releasing more public lands”when all the private land hasn’t been explored.”

Terry Hudgens, president of Texaco’s North American natural gasoperations, said the 30 Tcf projection could prove to be”conservative” by 2010. He expects natural gas to become thedominant part of the oil/gas E&P business in North America,expanding to between two/thirds and 80% of operations.

But, it will be expensive. “It takes about $30 billion annuallyjust to stay even because that’s the amount we eat up each year,”said Hudgens, advising the industry is not producing the financialreturns it needs long term to keep pace. He said the top 25 oil andgas producers in the last 12 years only produced an annual average5.4% return on equity while S&P averages were over 12%. “Duringthat time we’ve seen our debt ratio go up quite significantly.”

The key to the 30 Tcf market is prices, Hudgens continued. Hebelieves there will be very strong demand at prices of $2.50/Mcf,but “considerable” substitution of alternate fuels in electricgeneration and industrial applications if prices stay at $3/Mcf ormore. The distribution and transmission sectors are not helping inthat regard. Unless those middleman costs go down, the industrywill have a hard time reaching the predicted 30 Tcf market.

Meanwhile, Jerry Jordan, head of Jordan Energy Inc. andpresident elect of the Independent Petroleum Association (IPAA),predicted prices will go up and stay up. The price increases will”surprise a lot of people.” He claimed independents take theheaviest risk in exploring for new, smaller gas fields andtherefore need higher prices than those that larger companies willsettle for. “The wellhead price is going to go up and as far as theIPAA and the independent producers are concerned that is the onlyway the independents are going to be able to fulfill theirtraditional role in this country.”

Jordan said IPAA’s own surveys of reserves point to “unchartedwaters” since the industry has never had to respond to such robustdemand with such thin reserves and sparse drilling activity.

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