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Study Forecasts a Larger, More Diversified Demand Scenario

Study Forecasts a Larger, More Diversified Demand Scenario

In a new study forecasting gas supply and demand over the next 15 years, GRI said demand will reach 32.7 Tcf by 2015, but the industry will have to adapt to changing consumption patterns in order to take advantage. The results of the report, titled "GRI Baseline Projection of U.S. Energy Supply and Demand to 2015, 2000 Edition," were released last week at the National Press Club.

Overall, the GRI predicted a 1.3% annual increase in total energy consumption from 94 quads in 1998 to 118 quads by 2015.

"While GRI's 2000 Baseline Projection outlines a positive outlook for the natural gas industry, it sounds a call for change in the gas industry," said Paul Holtberg, group manager for the GRI Baseline Center. It "will need to undertake key investments and make significant changes in operational practices to meet the anticipated growth resulting from a fundamental shift in consumption patterns. The process will not be easy and will include an element of risk."

The demand increase represents an annual growth rate of 2.6%, which is about 60% faster than the rate of anticipated growth for total primary energy demand. Like many demand studies published recently, the GRI report said the driving factor will be electric generation, which the study forecasts to grow from 3.7 quads in 1998 to 8.9 quads in 2015. The report predicts that 44% of the gas demand growth through 2015 will be gas demand for electricity generation. Industrial gas demand took second place, with predicted growth from 9.8 quads in 1998 to 13 quads by 2015, representing 27% of the overall gas demand.

The "fundamental shift in consumption patterns" that Holtberg alluded to will occur in the electric generation sector as merchant generation capacity is predicted to challenge central utility generating capacity as the main driver of electric generation. Utility generating capacity will fall from 735 GW in 1998 to 530 GW in 2015. On the other hand, merchant generating capacity is expected to balloon from 40 GW in 1998 to 430 GW by 2015. To reach these levels, the GRI estimated that of the 125 GW of currently proposed merchant generating capacity, only 80 GW will be constructed.

The GRI also said distributed generation capacity (capacity generated by units with output of no more than 100 MW) will grow "very rapidly" over the next 15 years, from 28,000 MW in 1998 to 75,000 MW in 2015. The vast majority of this growth will be from microturbines and fuel cells, which will account for 28,800 MW of the growth during the forecast period.

The report says the average size of a generating facility will fall from around 95 MW in 1995 to about 75 MW by 2015.

"The smaller average size generating unit and the larger number of customers will increase the gas industry's cost of serving electric generation customers," the report said. "With a large number of generators, service offerings by the gas industry are likely to become broader to match the varying needs of customers." It added that with a larger number of smaller generating units, potential exists for greater volatility in both daily and monthly gas loads as customers make independent decisions about plant operations.

Along with growing demand, the GRI predicted a price increase trend over the course of the study period. Price "peaks are expected in 2007 and 2011, while "valleys" are forecast for 2004 and 2009. Lower-48 gas prices are projected to increase from $1.95/MMBtu in 1998 to $3.05/MMBtu by 2015.

Will there be enough supply to accommodate the growing demand? The report indicates needed supply will come from growing output from the deepwater Gulf of Mexico and from Canadian imports.

While Gulf of Mexico Shelf production continues to decline during the study period, deepwater and ultra-deepwater production more than make up the difference. The result is an overall increase in Gulf of Mexico output from around the current levels of 4.9 Tcf to more than 8 Tcf in 2015. The 3.1 Tcf increase accounts for 29% of the supply growth in the study period.

In Canada, slight declines in Alberta production will be offset by increases in eastern Canada and British Columbia. Canadian production is expected to increase from just over 5 Tcf in 1998 to 7.7 Tcf in 2015. GRI did not include production estimates from the Mackenzie Delta, Fort Liard or Sable Island areas in its assessment.

The report also includes analysis of crude oil prices, nuclear capacity, and changing production methods. For more information on the study, call the GRI Baseline Center at (703) 526-7832.

John Norris

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