Daily GPI / NGI All News Access

GRI Study: 'What if' Supply Estimates Derailed?

GRI Study: 'What if' Supply Estimates Derailed?

While the Gas Research Institute maintains the most likely future for natural gas includes low prices and a 31 Tcf market by 2015, it is hedging its bets with a new study examining the outcome if not all the expected pieces fall into place.

Gas Supply Sensitivities: An Alternative View of Gas Supply Trends (GRI-99/0148) reviews the market if technological innovations stall; if resource base estimates turn out to be over-stated; if producers reinvest fewer dollars in U.S. E&P; and if producers invest fewer dollars and require higher returns for higher cost offshore operations.

While GRI's analysis shows it's unlikely "than any of these five alternatives will occur or be sustained for a prolonged period," according to John Cochener, principal analyst, "unforeseen events could temporarily alter that view, which is why we assessed the impact of various effects on supply and price." This latest report was issued about a year after GRI issued its 1999 baseline projection last August.

For instance, if technological development were frozen at 1997 levels "gas prices would have to rise dramatically to attract the supply needed, resulting in as much as a 64% spike in wellhead prices by 2015," GRI said. Or if its resource base estimate of between 1,500 and 1,850 Tcf proved out to be overstated by 250 Tcf and prices stayed the same as projected, "lower-48 production would decline 14% vs. [GRI's 1999] Baseline and would begin having impacts on markets as early as 2010.

Taken one step further, a 500 Tcf glitch in reserve estimates "would create a 28% shortfall in supply, with a significant impact on markets beginning in the near-term. To trigger needed production with the 500 Tcf reduction, wellhead prices would have to rise 68% - the largest price increase of any of the five alternative cases." There would be more drilling, with the higher prices stimulating development of more shallow offshore and non-conventional wells as higher-quality offshore fields were depleted. Canada would be called on for an added 1.6 Tcf in exports.

If producers moved decidedly away from their traditional reinvestment average of 74% of domestic cash flow into domestic projects, the decline in drilling funds could have a negative impact ranging from 8% to 12% on lower-48 production and a lesser impact on Canada.

And a last alternative scenario - tripling the minimum rate of return required for offshore projects to compensate for increased risks - would trigger sharp declines in production and result in increases again of Canadian imports above the levels projected in the 1999 baseline study. The report is available from GRI for $150 for members and $200 for non-members. The study can be ordered from the GRI Document fulfillment Center by fax at 630-406-5995. Call Kelly Murray for information at 703-526-7832 or e-mail at baseline@GRI.org.

©Copyright 1999 Intelligence Press Inc. All rights reserved. The preceding news report may not be republished or redistributed, in whole or in part, in any form, without prior written consent of Intelligence Press, Inc.

ISSN © 2577-9877 | ISSN © 1532-1231
Comments powered by Disqus