Despite lagging U.S. natural gas production activity, Anadarko Corp. President Richard J. Sharples said last week he doesn’t anticipate a major “train wreck” between supply and demand this year. Nor does he see prolonged incidents of price volatility ahead in the gas market, as some have speculated.

“I think that you’re going to continue to see episodes like you’re seeing today [Thursday] in Florida with $8 gas prices [due to] a combination of heat and some pipelines down for maintenance. I think you’re going to see some temporary dislocations, and I think they’re necessary,” he told NGI, following a roundtable discussion in Washington, DC, last Thursday that was jointly sponsored by the Natural Gas Supply Association (NGSA) and the Canadian Association of Petroleum Producers (CAPP).

But cases of extreme volatility will be isolated and temporary, Sharples said. “This last year and a half taught producers a lot. It taught [industrial] consumers a lot. People are using hedging tools more,” he noted, and are “managing their business around a volatile market.”

He is probably one of the few people who sees an upside to volatility. “…[W]hile I think there are challenges resulting from that volatility, they are manageable, and the volatility actually presents opportunities in our business,” Sharples noted. It also imposes “market discipline in our business.”

Domestic drilling activity should begin to pick up “as we go through the next [third] quarter, and by the end of the year, we’ll start to see some increases in terms of gas production,” he believes. But drilling won’t “come close to where we were in the year 2001.” In the meantime, “we’re fortunate that we have a cushion in storage right now.”

Roughly one-third of the gas that’s being produced now comes from wells that were drilled over the last three years, Sharples said, pointing to an urgent need for the U.S. to find new gas-rich basins. “We need to find 12 Bcf/d just to stay flat” with last year’s production, which is “very close to [the amount] we import from Canada” each year, he noted. “So you could say we have to find a new Canada every year to hold our production flat.”

Domestic producers have been able to “meet or come close to meeting” this production level for many years, Sharples said. But since 1997, when U.S. gas production peaked, “the entire growth in the U.S. gas market has come from north of the border.”

Many of the U.S. traditional production basins — Texas, the shallow waters of the Gulf of Mexico (GOM), Oklahoma, Louisiana, Kansas — “have shown a decline in production. They’re exhausted,” he noted. “Technology moves the curve a little bit. Prices move the curve a little bit because things you [producers] might not have drilled because they weren’t significant enough [suddenly become attractive] with a higher price expectation. But it’s still not going to make much difference.”

The most-promising gas basins are the deepwater GOM, the Rocky Mountains and Canada, particularly the East Coast. While the Rockies’ coalbed methane production has “tremendous potential,” producers there also “have tremendous challenges to balance the appropriate environmental stewardship, the risk and rewards of drilling,” Sharples said. “This country is going to need [Rocky Mountain production].”

The U.S. is not running out of natural gas, but “where we can go, and where we will go are limited to some extent by the environment in which we have to operate, particularly the access to those basins. I think the debate needs to continue to focus here in Washington on responsible access to new areas so we can grow” gas resources.

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