Timing of 30 Tcf Market Unclear
After all of the ups and downs in the U.S.'s natural gas markets over the past year, industry experts at the 13th Annual LDC Forum in Chicago last week said they still foresee a 30 Tcf market in the future, but they differ on the expected timeframe. The speakers agreed that the nation's current infrastructure would need to be beefed up to shoulder the load.
Addressing concerns following a year-long rollercoaster ride that has seen highs of $10 gas, market watchers overwhelming agreed that a 30 Tcf market is more "future than fantasy." Led by the demand required by new gas-fired generation, Cavan Carlton, director of business development for Williams Gas Pipeline and director of Williams' Arctic Project, said U.S. gas consumption will reach 30.1 Tcf/year by 2011. He said gas demand for power generation is expected to increase the most in the Southeast, followed by the Northeast, Rockies and California. Overall, Carlton said he expects gas-fired power generation to grow by approximately 6% per year in the United States. By 2011, he projects the South Atlantic region and the ERCOT region will grow by 21 GW and 28 GW, respectively.
"Right now, if you look at total power generation in the United States, about 15% of [the] power generated [is] using natural gas," said Carlton. "Our projection is that by 2011 that number will grow significantly to 25%. This growth in natural gas demand will represent over half of all natural gas demand growth in the next 10 years."
To satiate this demand, Williams figures the production from the Lower 48 will continue to contribute the lion's share, with the Western Canadian Sedimentary Basin playing the second largest role. LNG, Eastern Canada and frontier production also will contribute through 2011. However, there will be costs.
"Infrastructure requirements will be tremendous," said Carlton. "If we are going to be a 30 Tcf market, and I have indicated to you that I do believe we will, INGAA has projected that over $35 billion will need to be spent on long-haul natural gas pipelines over the next 10 years."
Allowing that supplies will remain tight but sufficient, Carlton emphasized that frontier arctic gas will be necessary. In addition to saying that Arctic gas is needed to meet North America demand growth, he added that the Alaska Highway Route is the best way to move North Slope gas to market. The Alaska Highway Route is the "preferred route to deliver this gas as opposed to the over-the-top route."
Overall, to keep up with 2011 demand, Carlton said that 27 Bcf/d of new long-haul pipeline capacity will be needed, as well as 300 Bcf of new storage and additional LNG import capacity.
The Williams executive said hurdles to achieving an efficient 30 Tcf market include pipeline regulations and the "not in my backyard" mentality that is prevalent in the country.
"The demand is there, the supply is there, the infrastructure is in good shape today but will need to be expanded, and it is essential that we work together to make this happen," Carlton said.
While agreeing that the market would likely reach 30 Tcf, Steven Salato, vice president of origination with Conoco Gas and Power Marketing, said it is likely to happen later than many expect. Due to demand destruction as a result of recent volatility and the high gas prices experienced last winter, Salato said a 30 Tcf market is likely to occur post-2015.
"At the end of January  we were looking at a 10 Bcf/d estimate of demand destruction," said Salato. "Now that gas prices have come down over the year, once they got below $5 in most regions, demand that was lost to distillates started coming back. Also, demand from methanol and ammonia plants started coming back, however, some of those plants ended up permanently shut down, and that demand is gone forever."
Salato said that Conoco is "not quite as bullish as Williams." He said Conoco's old estimates showed that gas demand would get up to 27 Tcf in 2010 and 29 Tcf in 2015. "Now with demand destruction, we have lowered that forecast to about 24 Bcf in 2010 and 26 Tcf in 2015," Salato said.
With the company's acquisition of Gulf Canada, Conoco now has a significant interest in the Mackenzie Delta. While he said Conoco is in favor of the over-the-top pipeline project, he added that the company is in favor of any pipe that includes the Mackenzie Delta and the Alaskan prospects.
Echoing some of the same sentiments as Carlton, Del Blom, vice president of gas wholesale trading for CMS Marketing, Services and Trading Co., said the infrastructure is not adequate for the future. "If we get to a 30 Tcf market, we certainly do not have the infrastructure in place right now on the supply side to manage that, so there will have to be major changes to pipeline infrastructure to meet that demand. LNG certainly figures to play [a role] in that case if the market gets that big."
Currently, LNG accounts for a little over 1% of U.S. gas consumption. Blom said he expects that number to rise to 4.5% by 2004 and almost 9% by 2006.
"If we could maintain a $3.50 market we could find the supply [around] the world to meet demand," said Blom. "How many people are willing to stomach the volatility that goes with a $3.50 market is still to be determined."
Blom said of the 12 recently proposed LNG regasification terminals, only about five will come to fruition. One of the barriers to entry is the cost of setting up shop. Excluding liquefaction and shipping, setting up a regasification terminal costs approximately $300 million, Blom said.
"One of the greatest things that LNG offers on a daily basis is flexibility," said Blom. "Lake Charles alone can shut off flow to zero for a week then come on at 1.5 Bcf/d for the next week."
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