Despite price weakness at the end of 2006, cold weather in early 2007 depleted gas storage levels more than expected, and Schlumberger Ltd. CEO Andrew Gould told analysts Monday that the company believes "fundamentals are clearly in place for reinforced natural gas activity later this year."

More broadly, Gould told the Howard Weil Energy Conference in New Orleans Monday there are "distinct differences between the short-term outlook in North America and the longer-term global backdrop" for natural gas. Citing International Energy Agency statistics, Gould said gas demand is rising at an average rate of 2% per year in the 2004-2030 period and that investment of $3.9 trillion will be needed over the same period to grow supply to meet expected demand. Most of the dollars through 2010 are committed, but after that the outlook is uncertain, Gould said.

"But it is here in North America that capital costs are highest and where most of the spending goes simply to maintaining current capacity," he said. "The reason for this is once again the significance of accelerating production decline rates."

U.S. decline rates of gas wells are now in the low-30% range and the net result has been a fall in total production from 21 Tcf in 2001 to 19.4 Tcf last year, Gould said. Production today comes from 410,000 wells compared to 350,000 wells in 2001. "In other words," Gould said, "17% more wells today are producing 8% less natural gas than six years ago."

Hence the drive to unconventional reservoirs: tight gas, shales and coalbed methane. Nearly 40% of North American production comes from unconventional sources, Gould said, which makes for much different wells today than only several years ago. "Where one simple stimulation job would have sufficed, today's wells are often not economical without deployment of much more sophisticated technology," Gould said.

Technology has advanced, though, and Gould cited the Barnett Shale as one example. In the booming Fort Worth Basin play, advanced fracturing fluids and horizontal wells have increased production significantly. "The payoff of the horizontally fractured well has been estimated to be three times that of the fractured vertical well in some areas. Yet even if initial production rates are higher, decline rates remain just as significant and the natural gas treadmill continues to need new injections of technology," Gould said.

While technology can fill the production gap "for a few more years to come, we will increasingly need to supply natural gas through imports of LNG," he said.

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