The need for natural gas in the West is not going away, but where added supplies will come from and at what price are details still to be fully worked out, according to a panel of industry executives at the LDC Forum Rockies & West annual two-day conference in Los Angeles last Tuesday. The panelists outlined growing North American gas demand, new supply alignments and increased volatility that will have energy planners scratching their heads through the 2010-12 period.

While the West tries to hang on to the liquefied natural gas (LNG) supplies under contract in the face of growing Asian market pressures, by the 2010-2012 period there will be a need for another 1 Bcf/d expansion in the still-developing Rockies Express (REX) interstate pipeline to the East, said George Wayne, manager of strategy, project and market analysis for El Paso Corp.'s Western Pipeline Group. In the meantime, he sees the Gulf of Mexico increasingly being the receipt point for the bulk of U.S. LNG imports, and growing doubts about if, not when, new pipeline supplies might flow from Alaska and the Mackenzie Delta in Canada.

Other speakers see the keys lying in a combination of whether the demand continues at the 3.5-5% annual growth for REX expansion, what happens in Western Canada in terms of production and provincial energy policies, and whether California's all-out push for increased electricity supplies from renewable resources truly takes hold. The latter could be a boon for natural gas, according to Steve Larson, president of Woodside Natural Gas, one of the proponents of an offshore LNG receipt project along the Southern California coast.

It is Larson's contention that despite California's obvious reluctance to site an LNG terminal so far, the California Energy Commission's (CEC) planning documents recognize the need for up to 1.5 Bcf/d of LNG by 2017, largely to fuel more natural gas-fired peaking generation as a backup to the state's growing reliance on renewables and energy efficiency.

For the West, including Canada, "the supply warning lights are flashing" now; drill rig counts are down 30% year-over-year, said Alex Douglas, Nexen Marketing USA's managing director. He outlined various production field developments that point to greater emphasis on U.S. Rockies and LNG imports for future supplies, noting that in addition to fewer wells being drilled, the production on average for each of them is declining on both sides of the U.S.-Canadian border. Also there has been a "flip-flop" in average reserve lives in the two nations with Canada now having a shorter reserve life than the United States (8.5 years vs. 12.8 years, respectively).

Douglas and another panelist, Ultra Petroleum Corp.'s Stuart Nance, emphasized the growing challenges to traditional gas production and delivery systems in the West. They see the continuing growing demand for Rockies supplies (moving west and east) being a key. And this growing demand and growing supply tightness, along with various climate change pressures for renewables, sets the stage for Larson's thesis that in a carbon-constrained world "gas for fulfilling energy demand gets the most attention."

Gas for power generation is the key because this is where renewables will have their biggest impact, Larson said. For Woodside, the key to its siting an offshore LNG project is tied to the fact that conventional production costs for gas are growing faster than supplies and LNG ultimately can help the environment. "The bottom line becomes gas and renewables are really good for one another," he said. "Increasingly our electrical generation system will resemble a backstop system, and the renewables will need this. If economically we can never fully commit to total renewable reliance, gas is the most cost-effective way to provide the supplemental power."

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