Frontier E&P Expected to Escalate
Frontier market activity is increasing across the board for
North American natural gas producers who have begun pouring more
resources into deepwater Gulf of Mexico, Atlantic Canada and the
Arctic to complement the increasingly stronger plays onshore.
Still, bureaucracy is hindering the ramp up for new exploration and
production that could hinder supplies into the future, warned some
energy experts last week.
Market forces have finally collided, creating opportunities for
producers to increase production in new areas across North America,
said Thomas R. Robinson, managing director of the Cambridge Energy
Research Associates. Robinson, who shared a panel at CERAWeek 2001
in Houston with executives from El Paso Corp., Shell Gas and Power,
Devon Energy Corp. and TotalFinaElf, said there is a "new drive to
develop several very prospective, long-term supply frontiers."
Less than 10 years ago, North American producers were talking
about inventory management, he said. He now sees a shift in E&P
philosophy, especially in the past year. Because of consumer price
spikes from a cold winter and problems in certain industrial
sectors hit by high gas prices, "now, there is shock, and the
result is reaction."
Robinson warned that frontier exploration and production still
will be difficult, but added that "more gas is being developed and
prices will come down. It's not going to happen over night. It's
going to take a long time to work through the system, and this
political and policy debate on the role of gas in the nation's
economy and energy mix will continue."
Devon Energy CEO J. Larry Nichols, who called for opening more
U.S. frontiers to new exploration, said the "day of reckoning came
in fourth quarter 2000 when at long last natural gas had the full
attention of the public." He said the coldest winter in years
combined with a "supply cushion that had eroded away" was something
producers have cautioned about for several years.
"The real crisis occurred two years ago," Nichols said, when
there were low natural gas prices and no growth in the industry.
"We didn't develop the frontiers. We didn't develop the experience
we need. Now we have a shortage of people. We have a shortage of
drilling rigs." Despite the shortfall two years ago, Nichols placed
most of the blame at the feet of politicians.
"Bad government policy" is a fundamental reason for the high gas
prices today, Nichols said. "All forms of energy were under attack
for far too long," he said, referring to the Clinton
Administration's policy of designating more areas off limits to
development, especially areas with suspected natural gas reserves.
Nichols said opening the frontiers would be a more difficult
problem to fix, but he said he was encouraged by the Bush
Administration's stance on securing U.S. energy supplies.
"We're not able to drill wells where we're able to drill wells.
Once the signals are set, industry will respond quickly," Nichols
El Paso Corp. CEO William Wise, who said he was concerned about
the flat natural gas production over the past several years, said
the industry faces a challenge in providing deliverability. Though
his company concentrates on developing the resources it has, Wise
told the audience that producers "have to hit the frontiers" as
part of an overall plan for the future.
Shell Gas & Power CEO Linda Z. Cook called the United States
unique in that more than half of its natural gas supply comes from
small independent producers, with about 16% from Canada. To
encourage more development, she thinks there will be liberalization
in the marketplace. "There is a clear trend" toward that, she said.
Carolyn Davis, Houston