Members of the National Petroleum Council (NPC) overwhelminglyapproved a report last week by its natural gas committeeforecasting a 32% increase in gas demand over the next decade, andsaying the nation could get that gas for 40 to 50 cents less ifproducers are allowed to access currently restricted areas.

Titled “Meeting the Challenges of the Nation’s Growing NaturalGas Demand,” the study will be used as a platform for membercompanies to lobby for increased access to protected producingareas, more comprehensive research and development projects andincreased funding.

“We’re stressing the use of this study for education,” saidRebecca Roberts, chair of the NPC’s coordinating subcommittee. “Ourmembers can take the study to their members of Congress and use itto prove their points. Now that it’s being published, we expect itseffects to start occurring as soon as possible.”

The report includes seven major recommendations which the NPCmembers agreed to pursue. Chief among these recommendations is tocall for the government to set up an interagency work group underthe National Economic Council, which will establish a strategy atthe highest level for natural gas in the nation’s energy portfolio.Both the NPC and the Department of Energy (DOE), said therecommendation is already being explored on both sides. T.J.Glauthier, a deputy secretary of energy, said he would propose theidea to both Bill Richardson, the energy secretary, and JohnPodesta, the President’s chief of staff. Other recommendationsinclude establishing a long-term approach to developing the gasresource, heavily investing in R&D projects and focusing oncapital, infrastructure and human resource needs.

The report took a decidedly bullish stance on the demandsituation. Besides the 32% increase, which would have the industryreaching 29 Tcf demand by 2010, it also said actual demand hadexceeded a study done by the NPC in 1992 by more than approximately1 Tcf. Going forward, the study said demand growth will be 47%driven by electric generation, with industrial demand commanding23% for second place.

One of the study’s main thrusts, which the NPC members said theywould address, was the issue of access to production. According toTravis Stice, a regional engineer for Burlington Resources and thepresenter of the supply-side findings of the report, 213 Tcf ofsupply exists with restrictions in the lower-48 region. The lion’sshare of that total, 137 Tcf, is located in the Rocky Mountainregion. The restrictions include a wide range of obstacles fromuntouchable parkland to high-cost drilling. The access issue wasthe first on the list of critical factors included in the study.

“The resource base will be one of the key price drivers in thefuture,” said Roberts.”We [looked at] two distinct cases in thestudy; one with increased access [to the restricted areas] and onewith reduced access…In the case of increased access, prices werelowered between 40 and 50 cents in the outer years.”

For Harry Vidas, managing director for the company involved withthe data modeling of the study, Energy and Environmental AnalysisInc., the access issue had the largest impact on prices compared toall the other criteria. “The two more important issues are theaccess and the R&D funding. They are at the top of peoples’lists. When they go talk to the government they want to get theaccess issue across because it has such an effect on supply andprice.”

On the transportation side, the report found that 38,000 milesof transmission pipe and 255,000 miles of distribution pipe will beneeded to accommodate this demand, resulting in an estimated $123billion in investment capital over the course of the study period.Storage capacity will need to be expanded by 850 Bcf, and 30 Bcf ofinterregional pipeline capacity will have to be added as well. Muchof the need is fueled by growing peak-day demand, which will exceedcurrent capacity by 2005 unless new pipe is built.

Access issues arise in this sector as well, as many recentpipeline projects have come under heavy fire from governmentregulators and landowners. Susan Ortenstone, the presenter of thetransmission-side findings and vice president of El Paso GasServices, used the embattled Independence Pipeline project as anexample (see separate story, this issue). Despite these numbers,the study found that the transmission sector should not be daunted.”Although the rate of growth is substantial, it is not beyond whatthe industry has done before,” Roberts said.

NiSource Chairman Gary Neale, the incoming chairman for 2000 ofthe American Gas Association, said the AGA generally agrees withthe NPC study.

“From the supply side it really shows that we’re going to have alot of natural gas… The study reminds us not to underestimate theexpanding resource base that we see in the natural gas industry. Weall have a tendency to look at proven reserves as our indication ofwhere we are at, but it’s the resource base that we need to look atin the future in addition to the proven reserves.

“The only place we disagree a little bit with the NPC study…isin the price area. The NPC study talks about rapidly increasingprices. We think those prices will be mitigated substantially fromthe expansion of the resource base, which the NPC study also admitsto, but also from the technology side. We are finding gas cheapertoday than we ever have. Demand has grown 35% over the past decade,yet adjusted for inflation the price of gas paid by consumers hasdecreased by 25% and most of that is because of the technology inthe way we find gas.”

The final report was released last week. For a copy, call CarlaByrd at (202) 393-6100 or contact her through email atcbyrd@npc.org.

John Norris

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