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Producers' Struggle Expected to Continue in 2001

Producers' Struggle Expected to Continue in 2001

The IPAA's Supply and Demand Committee said a rig and drilling workforce shortage is seriously hindering a supply response to soaring gas prices, and the problem is likely to continue in 2001.

In a new supply and demand forecast, the committee noted producers are aggressively exploring for and producing gas to meet burgeoning demand; the gas rig count is at a record high. However domestic gas production probably will grow by only 1.5% next year to 19.01 Tcf, with most of that growth occurring in the Gulf of Mexico. Meanwhile, consumption will jump 3.4% to 22.77 Tcf/year.

"The incentives to produce certainly are there," the IPAA committee said in a statement. "But in order to produce more gas quickly, producers need to find yet more drilling rigs and competent personnel to operate those rigs. Many highly qualified people left the industry during the oil (and natural gas) price crisis of 1998-1999 and not all have returned. Many rigs were idled on service company premises and cannibalized for spare parts.

"The depth of the 1998-99 depression means a long haul back. Many independents say they got back on their feet this summer, a full 18 months after an OPEC pact to curtail petroleum production began to be felt. Recovery in the oil and natural gas production industry does not happen overnight."

As a result, the committee foresees only a "gradual recovery" in production. The committee also believes storage inventories will be very low next year, so low in fact that the industry will have "another uphill battle to replace enough gas in storage to meet the established target level of 3 Tcf by the start of the next withdrawal season around November 2001" (see related story this issue).

Storage is increasingly being used to capture short-term pricing differentials in addition to its traditional role of serving winter demand. Consequently, the committee believes the gas market will remain tight for the rest of the winter and into the summer storage injection season.

Real economic activity, as measured by inflation-adjusted Gross Domestic Product (GDP), is projected to increase at an annual rate of 3.2% in 2001. Economic growth, electricity demand and normal weather are expected to drive U.S. total energy consumption in 2001 to an anticipated 95.77 quadrillion Btus (quads), an increase of 1.8%. Gas consumption by electric utilities is expected to increase 4.7% next year to 2.92 Tcf.

To compensate for the absence of sufficient domestic supply growth, the committee forecasts imports will rise 8.6% next year to 4.07 Tcf. However increased Western Hemisphere trade opportunities also will boost gas exports to 252 Bcf in 2001, up 7.2% from 2000, IPAA predicted

Copies of the IPAA Supply and Demand Committee's forecast are available on request. Call Brigid Gartland at (800) 433-2851.

Rocco Canonica

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