While the Gas Research Institute maintains the most likelyfuture for natural gas includes low prices and a 31 Tcf market by2015, it is hedging its bets with a new study examining the outcomeif not all the expected pieces fall into place.

Gas Supply Sensitivities: An Alternative View of Gas SupplyTrends (GRI-99/0148) reviews the market if technologicalinnovations stall; if resource base estimates turn out to beover-stated; if producers reinvest fewer dollars in U.S. E&P;and if producers invest fewer dollars and require higher returnsfor higher cost offshore operations.

While GRI’s analysis shows it’s unlikely “than any of these fivealternatives will occur or be sustained for a prolonged period,”according to John Cochener, principal analyst, “unforeseen eventscould temporarily alter that view, which is why we assessed theimpact of various effects on supply and price.” This latest reportwas issued about a year after GRI issued its 1999 baselineprojection last August.

For instance, if technological development were frozen at 1997levels “gas prices would have to rise dramatically to attract thesupply needed, resulting in as much as a 64% spike in wellheadprices by 2015,” GRI said. Or if its resource base estimate ofbetween 1,500 and 1,850 Tcf proved out to be overstated by 250 Tcfand prices stayed the same as projected, “lower-48 production woulddecline 14% vs. [GRI’s 1999] Baseline and would begin havingimpacts 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 impacton markets beginning in the near-term. To trigger needed productionwith 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 stimulatingdevelopment of more shallow offshore and non-conventional wells ashigher-quality offshore fields were depleted. Canada would becalled on for an added 1.6 Tcf in exports.

If producers moved decidedly away from their traditionalreinvestment average of 74% of domestic cash flow into domesticprojects, the decline in drilling funds could have a negativeimpact ranging from 8% to 12% on lower-48 production and a lesserimpact on Canada.

And a last alternative scenario – tripling the minimum rate ofreturn required for offshore projects to compensate for increasedrisks – would trigger sharp declines in production and result inincreases again of Canadian imports above the levels projected inthe 1999 baseline study. The report is available from GRI for $150for members and $200 for non-members. The study can be ordered fromthe GRI Document fulfillment Center by fax at 630-406-5995. CallKelly Murray for information at 703-526-7832 or e-mail atbaseline@GRI.org.

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