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Gas Resources Continue to Grow, But Challenges Lie Ahead

Gas Resources Continue to Grow, But Challenges Lie Ahead

Downplaying the current struggle to boost gas supply enough to meet rapidly growing gas demand, officials at the Potential Gas Committee (PGC) last week instead highlighted the slow and steady growth of the resource base in the U.S. Canada and Mexico, and the need for fewer government restrictions on land access and exploration and production.

Producers still have more than enough reservoir targets from which to choose, committee officials said in releasing their biennial report on the potential supply of gas in the U.S. However, they warned that some energy policy changes and significant public education are needed for the industry to continue expanding the resource.

While the report indicates there is room for a "good amount of optimism, there are some significant challenges," said the American Gas Association's (AGA) Chris McGill, referring to needed policy changes that would lift moratoria on offshore drilling and remove land-access restrictions, particularly in the Rockies, so producers can drill more wells. "The problem is that we can't wait 10 years to do something about [the current energy crisis]."

The resource has been expanding with each successive report over the past 10 years, PGC said. The current report shows that despite 38 Tcf of production in 1998 and 1999 the size of the gas resource actually increased 4.5% to a total of 1,258 Tcf in the United States at the end of 2000, the equivalent of a 63-year supply of gas. The growth was attributed to a 4% increase in traditional reservoirs and 10% growth in coal-bed methane resources.

PGC Director John Curtis said the production industry continues to get smarter, improve technology and boost efficiency. He also noted that production in Canada continues to grow at a rapid pace meeting 15% of U.S. demand. And Mexico is the "sleeping giant" with a tremendous resource but so far very little effortto produce it.

In the U.S., the industry is finding ways to make up for sharp decline rates in some locations, particularly the Gulf of Mexico, by drilling more wells and targeting longer-lived resources in other regions, such as the Rocky Mountains, PGC officials said.

The committee estimated that at the end of 2000 there was a 4.4% increase in traditional reservoirs to 936 Tcf of gas and a 9.7% increase in coal-bed methane to a total of 155 Tcf. A regional breakdown shows 259.4 Tcf of potential gas resources in the Gulf of Mexico and Gulf Coast region, 176.6 Tcf in the Rocky Mountain region, 124.4 Tcf in the Midcontinent, 103.9 Tcf in the Atlantic region, 55.1 Tcf in the Pacific and 22.2 Tcf in the North Central region. Those numbers include "probable, possible and speculative" reserves with speculative representing the largest portion of the resource. The Department of Energy estimates there are 167 Tcf of proved reserves, which are reserves that have been discovered and booked by the industry.

"These figures are a testament to the sustainability of future natural gas production at even greater annual rates," said Roger Cooper, executive vice president of AGA, which provides funding for the PGC. "That's great news, since more homes, businesses and power facilities are looking to natural gas because it is cleaner-burning, efficient, reliable and available in abundance here in the United States."

Cooper also praised the pro-natural gas provisions of the energy bills recently introduced by Sens. Frank Murkowski (R-AK) (S.388, S. 389) and Jeff Bingaman (D-NM) (S.596, S. 597) as well as in the Bush Administration's recent energy policy statements. "All the increases in the world don't add up to much if we can't transport those supplies to market," Cooper said. "It's vital to gain greater access to our tremendous resource base, expand our pipeline delivery system and support development of energy efficient technologies."

According to the American Association of Professional Landmen (AAPL), which provided a paper that was included in the PGC report, in the past 20 years access to public lands and waters has become "increasingly difficult and often impossible. Since 1983, access to mineral resources in the West has declined by more than 65%. Less than 17% of the total federal mineral estate is leased today compared with 72% in 1983. Moreover, the public is generally unaware of how such access restrictions affect the market availability and price of oil, gas and petrochemicals and all the products derived from them or dependent upon them," AAPL said.

AAPL noted that a recent report by the National Petroleum Council showed that 40% (137 Tcf) of the potential natural gas resource in the Rocky Mountain region is closed to exploration or under restrictions. Another 76 Tcf is closed in the offshore areas. Together these resources subject to access restrictions represent a 10-year supply of gas at current production rates, AAPL noted.

"High oil, natural gas and gasoline prices in 2000 and the potential for a nationwide 'energy crisis' have drawn considerable public attention to the petroleum industry. It is their responsibility, therefore, to educate both the public and government officials, elected and appointed about the critical issues, including lack of access, that have helped bring about price volatility and shortages," said AAPL.

Nevertheless, PGC officials agreed that high gas prices are likely to be around for some time even if there is greater access to public lands because a large portion of the remaining gas resource is located in frontier areas with greater risk. "Our view is that the average price of gas is going to go up," said AGA's McGill. "That's not necessarily bad," he said. "When you start getting higher prices you diversify, you look at LNG, Alaska, etc... We're just not going to meet [30 Tcf of] demand at $2/MMBtu."

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