Andersen Sees Challenge In Burgeoning Gas Demand
After a decade of recuperation, the North American gas industry faces
the challenge of growing end-use consumption to 25 or even 30 Tcf in the
U.S. alone over the next decade, according to the 1998 North American Natural
Gas Trends report released yesterday by Arthur Andersen and Cambridge Energy
Research Associates (CERA).
"The gas industry now faces an unprecedented window of opportunity
to rapidly increase end-use consumption," said Tom Robinson, CERA
senior director. "But with this opportunity comes the challenge of
developing adequate gas supply resources and infrastructure to meet what
could grow to be a 25 or even 30 trillion cubic foot market in the United
States over the next decade."
Five features of the demand growth challenge pointed out by the report
- The industry's success in convincing the market gas is a safe, reliable
and plentiful fuel. "Customers have gotten the message: natural gas
use is rising in industrial applications and gas is winning the battle
as the fuel of choice for new home hookups," the report reads.
- Gas reserves have not risen with production although over the past
decade North American gas production has risen from 20.2 Tcf to 26.2 Tcf
per year, implying a 30% increase in the requirement to find and develop
new supplies just to replace reserves. The industry's reserve-to-production
ratio has declined to less than 12-to-1. "But the combination of higher
production and a lower reserves-to-production ratio means a growing requirement
to develop new supplies each year."
- New infrastructure will be needed to connect new supplies with growing
markets. "This need will be most pronounced in regions where gas has
had a lower market penetration, such as the U.S. Northeast and Southeast.
It will also require new infrastructure to connect new supply areas - such
as the deep-water Gulf of Mexico, Atlantic Canada, and possibly even Arctic
- Unbundling and retail choice. "The industry also faces the challenge
of a radical restructuring of its interface with customers, as unbundling
pushes further downstream to reach retail distribution for small customers."
- Gas and power convergence. "Although convergence has not gone
so far as to subsume the gas industry within the power industry, the necessary
connection between gas and power is growing ever closer." Factors
causing this are growing use of gas in power generation, integration of
gas and power in the distribution sector with a growing connection likely
in billing, metering and customer information systems, and the bundling
of multi-commodity products by energy service companies in attempts to
serve a wider array of customers.
Andersen and CERA said significant new risks are involved in developing
the gas infrastructure. "Many in the gas industry are focusing on
the specific areas where they are skilled at managing risk and creating
value. However, without the regulatory safety net, risk-sharing mechanisms
and new alliances are increasingly in vogue," said Everett Gibbs,
managing director of gas industry services for Andersen. "As the market
matures, opportunities to create value will inevitably move downstream,
often in a retail context."
Total North American gas consumption has grown by nearly 3% annually
in the last decade, increasing from 19.9 Tcf in 1987 to 25.8 Tcf in 1997,
the report said. The United States accounts for 85% of total North American
consumption. Industrial power generation, mainly cogeneration, has fueled
a 57% increase in gas consumption in the industrial sector since 1986.
Growth in energy intensive industries such as paper, steel and refineries
also has increased industrial use of gas.
North American gas production has increased to 26.2 Tcf in 1997 from
20.2 Tcf 10 years earlier. Canada contributed nearly half of this increase
and has more than doubled its production to 5.6 Tcf, Andersen and CERA
In the United States, the rate of production has become more consistent
throughout the year to support rising use of gas for power generation in
peak summer demand months, with the typical seasonal drop in production
falling from 4.8 Bcf/d in 1987 to about 1 Bcf/d in 1997.
Joe Fisher, Houston
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