GRI Study: 'What if' Supply Estimates Derailed?
While the Gas Research Institute maintains the most likely
future for natural gas includes low prices and a 31 Tcf market by
2015, it is hedging its bets with a new study examining the outcome
if not all the expected pieces fall into place.
Gas Supply Sensitivities: An Alternative View of Gas Supply
Trends (GRI-99/0148) reviews the market if technological
innovations stall; if resource base estimates turn out to be
over-stated; if producers reinvest fewer dollars in U.S. E&P;
and if producers invest fewer dollars and require higher returns
for higher cost offshore operations.
While GRI's analysis shows it's unlikely "than any of these five
alternatives will occur or be sustained for a prolonged period,"
according to John Cochener, principal analyst, "unforeseen events
could temporarily alter that view, which is why we assessed the
impact of various effects on supply and price." This latest report
was issued about a year after GRI issued its 1999 baseline
projection last August.
For instance, if technological development were frozen at 1997
levels "gas prices would have to rise dramatically to attract the
supply needed, resulting in as much as a 64% spike in wellhead
prices by 2015," GRI said. Or if its resource base estimate of
between 1,500 and 1,850 Tcf proved out to be overstated by 250 Tcf
and prices stayed the same as projected, "lower-48 production would
decline 14% vs. [GRI's 1999] Baseline and would begin having
impacts on markets as early as 2010.
Taken one step further, a 500 Tcf glitch in reserve estimates
"would create a 28% shortfall in supply, with a significant impact
on markets beginning in the near-term. To trigger needed production
with the 500 Tcf reduction, wellhead prices would have to rise 68%
- the largest price increase of any of the five alternative cases."
There would be more drilling, with the higher prices stimulating
development of more shallow offshore and non-conventional wells as
higher-quality offshore fields were depleted. Canada would be
called on for an added 1.6 Tcf in exports.
If producers moved decidedly away from their traditional
reinvestment average of 74% of domestic cash flow into domestic
projects, the decline in drilling funds could have a negative
impact ranging from 8% to 12% on lower-48 production and a lesser
impact on Canada.
And a last alternative scenario - tripling the minimum rate of
return required for offshore projects to compensate for increased
risks - would trigger sharp declines in production and result in
increases again of Canadian imports above the levels projected in
the 1999 baseline study. The report is available from GRI for $150
for members and $200 for non-members. The study can be ordered from
the GRI Document fulfillment Center by fax at 630-406-5995. Call
Kelly Murray for information at 703-526-7832 or e-mail at
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