Ziff Survey Finds Land Restrictions, Services Pose Challenges
Land restrictions and the availability of adequate drilling services --- including qualified personnel --- pose the greatest challenge to increasing North American gas production, according to Ziff Energy Group's Third Annual Gas Industry Survey, unveiled in Houston at the North American Gas Strategies Conference. Ironically, last year's biggest challenge was considered to be low prices.
CEO Paul Ziff said the survey is designed to "provide an integrated description" of the North American gas market from "wellhead to burner tip," reporting that the North American natural gas industry remains confident about the sustained growth in gas consumption, but it expects high prices to continue and also expects to see a record low level of stored gas at the beginning of the next heating season.
The survey, conducted in February and March by the Calgary-based consulting firm, represented the views of 97 companies in North America, including producers, end-users, marketers, pipelines, storage operators and local distribution companies.
Most of the near-term supply growth through 2005 will come from increased production in the Gulf Coast region, including offshore and onshore, and western North America, including Canada and the U.S. Rocky Mountains. Respondents said that Alaska and Canada's Mackenzie Delta are "most likely to begin deliveries in 2007-2008," and will become "major supply sources," while the Gulf of Mexico will retain its importance through 2010.
Regarding supply, Ziff found that the "continued strength in gas price expectations is reflected in producer optimism for production growth." With record drilling levels in the Gulf of Mexico and Canada, and a 15-year high for onshore U.S. drilling, "producers expect to be producing at least 5% more by year-end 2001, and nearly half anticipate increasing production by at least 20% by 2005." Ziff said, "part of this optimism may also reflect the fact that producer respondents did not report further accelerations in production declines."
Despite the recent enthusiasm by several major producers to improve liquefied natural gas imports, the survey's respondents were less enthusiastic. The survey found respondents expecting LNG imports to not exceed 2 Bcf/d by 2005, "less than the capacity of the four existing LNG terminals (two operating, two others to reopen in 2002)." Respondents also said they did not expect existing LNG capacity to be fully utilized by 2005.
The storage outlook for next winter also appears gloomy, with respondents expecting the storage fill at the beginning of the 2001-2002 heating season to "be one of the lowest, if not the lowest, on record. If the upcoming winter is similar to this one, winter 2001-2002 prices might be higher than 2000-2001 heating season prices."
North American gas consumption likely will grow about 20% in the next 10 years, said respondents, approaching the expected 20 Tcf in 2010. They also "remain optimistic about strong growth in gas sales to generate electricity, despite higher gas prices since 1999. In fact, most producers expect that gas can remain competitive with alternative fuels up to a gas burner tip price of $6/MMBtu, double the threshold price of two years ago."
Respondents expect the Nymex Henry Hub prices to average near US$6/MMBtu this year, well above the minimum price necessary to increase North American gas production. "Further, with tight storage, either a warm summer or a cold winter would produce significant price volatility."
Canadian respondents were more bullish about price prospects than their U.S. counterparts, which was consistent with the two earlier surveys. More than half of all those surveyed, 59%, expect gas prices to "continue to exceed oil prices by more than 10%."