IPAA Says Domestic Supply Struggle Should Continue

U.S. natural gas production and the nation's vociferous demand could make it a little more dependent on imported gas if a recent long term forecast by a committee of the Independent Petroleum Association of America (IPAA) holds up. Natural gas demand is expected to increase to 30.7 Tcf by 2015, while U.S. production is only expected to get up to 24.8 Tcf over the same time period.

In new IPAA Supply and Demand Committee forecasts for the short and long runs, the group said gas demand is expected to steadily continue to increase until 2015 at a rate of 1.8% annually, reaching 24.8 Tcf by the year 2005, 28.1 Tcf by 2010 and hit 30.7 Tcf by 2015. However, U.S. production will rise by 1.9% in 2001 and 1.3% annually through 2005. By 2005, the IPAA expects production to reach 20.5 Tcf and in 2015, it will hit 24.8 Tcf.

U.S. gas production is expected to rise to 19.59 Tcf in 2001, sparked by higher prices during late 2000 and early 2001. "The committee believes that natural gas growth will continue to be focused on the shallow shelf of the Gulf of Mexico, supplemented by considerable increases in Lower 48 onshore drilling activity," the IPAA said. "Due to increasing decline rates that continue to reduce the sustainability of wells' production, marked increases in gas-directed drilling has only gradually yielded increased production. After declining production levels in 1998 and 1999, increased drilling activity lifted 2000 supply by 3.7%."

One possible solution to the supply-and-demand crunch is imports. "Total gas imports, mainly from Canada, are expected to rise to 4.95 Tcf by 2005, up from 3.73 Tcf in 2000," the IPAA committee said. "Imports of 6.05 Tcf in 2015 will account for almost 20% of [the United States'] total gas demand."

Help could also come from new pipeline development and production in Alaska and/or the Mackenzie Delta, but the committee believes the area will not come into play until at least the 2010 timeframe. Despite the promising prospects in Mexican basins, the IPAA said the United States will likely continue to act as a net exporter to that country for the near future.

"LNG imports add a new variable to the supply matrix, with imports up 22% between 1999 and 2000 and anticipated forward growth averaging 8% annually," the committee said. "Considering the tight supply situation, the LNG factor will only gain in relative market share (especially as a peaking fuel) despite its 1% share of total gas demand."

For the energy mix, the IPAA said, "From 2000-2015, natural gas will grow by an annualized rate of 2.2%. Coal will grow at an average annual rate of 1% annually, continuing to be the favored base-load fuel for electricity."

The IPAA estimates that half of the 7.4 Tcf demand increase from 2000 to 2015 will be earmarked for electricity generation. "Electric industry restructuring creates some uncertainty over the growth of gas demand over the next few years," the IPAA said. "However, the committee believes that gas continues to be the most economic fuel for new electric generating additions."

The committee said gas storage continues to be a critical factor as price differentials, seasonal demand variability, just-in-time inventories and regional infrastructure problems continue to affect the supply situation. "After the tight market of 2000, the committee believes that natural gas may face similar challenges in reaching the traditional 3 Tcf level by the beginning of the withdrawal season," the committee said.

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