Not all of the Rocky Mountain natural gas to be shipped by Rockies Express Pipeline to eastern markets is likely to reach its intended destination due to the expanding demand in the Midwest, said an executive for Nexen Marketing USA Inc. at GasMart 2007 Thursday.

"When that [Rockies Express] gas arrives in Ohio the intent is for it to go east, but we may find that when it arrives in Ohio that the Midwest market has an appetite for that gas," said David Slater, managing director of marketing & structured products for the Calgary-based company, at the conference sponsored by Intelligence Press in Chicago.

"Where originally they thought it would go farther east, it may actually stay right in the Midwest, and that may just be a function of what's happening on some of the other [older] pipelines," where throughput has declined or is projected to decline, he noted. "Some of [the] traditional pipelines won't be as full as they have been in the past," Slater said.

The Rockies gas "takes the pressure off Alberta gas to meet the entire Midwest demand that it's met historically," he noted. Rockies gas will be both displacing and replacing Alberta gas in the U.S. Midwest, Slater said. "You don't see any other basin really accelerating as quickly as the Rockies basin."

"You've got a growing [gas] market in the Midwest," Slater said, adding that traditional demand has grown by 2% a year. The Rockies Express Pipeline is expected to begin service to the Chicago area in January 2008.

Energy consultant Wood Mackenzie expects that "by the time that [Rockies Express] pipe's in service for a year and a half, another pipe's already going to be needed," said Will Hussey, senior vice president of origination for ConocoPhillips.

On the supply side, U.S. and Canadian producers are actively drilling, but gas production remains flat in both countries. Canadian producers are redploying much of their capital to oil sands development instead. The supply warning lights are on in Canada," said Slater, adding that Alberta is "running hard to stand still." Still, he expects coalbed methane production to grow in the years ahead, hitting 1.6 Bcf/d in 2015, and the Western Canadian Sedimentary Basin to continue as a significant supplier to the U.S.

Despite his company's active drilling program, Hussey anticipates a "reduction in supply out of Canada by as much as a Bcf/d" in the near term. In the U.S., "although we're on this treadmill on the supply side, we're working as hard as we can to get supply going. [But] consumption is outpacing it," he said.

In the Lower 48 states, the rig count is higher than it's ever been, Hussey noted. More than 30,000 gas wells were drilled last year. However, "there isn't a one-to-one relationship between wells being drilled and new production being added," he said "U.S. drilling is going lights out," but "U.S. well productivity [is] going down."

While conventional gas represented 65% of domestic production in 2000, that picture is changing. By 2012, conventional gas will account for less than 50% of domestic gas production, Hussey noted. By 2030, 60% of production will come out of the West, with the Gulf Coast coming in second. "Rocky Mountain supply, I think, you're going to see it bust out of its pants," Hussey noted. On the downside, however, the unconventional gas will be higher-cost supply, he said.

As for liquefied natural gas (LNG), "it hasn't had a big impact on us yet, but it's coming. Don't let it lull you into sleep," Hussey said. "LNG is going to be on the rise fairly soon" in the U.S. The nation, with all of its storage facilities, "is going to be [the] gas balancer" for worldwide markets. The U.S. has twice the amount of storage of Europe and four times the amount of storage of Asian nations, he noted.

Nexen's Slater anticipates LNG imports, which are expected to double by the end of 2008, to further displace Alberta natural gas.

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