NGI The Weekly Gas Market Report / NGI All News Access

Andersen Sees Challenge In Burgeoning Gas Demand

Andersen Sees Challenge In Burgeoning Gas Demand

After a decade of recuperation, the North American gas industry faces the challenge of growing end-use consumption to 25 or even 30 Tcf in the U.S. alone over the next decade, according to the 1998 North American Natural Gas Trends report released yesterday by Arthur Andersen and Cambridge Energy Research Associates (CERA).

"The gas industry now faces an unprecedented window of opportunity to rapidly increase end-use consumption," said Tom Robinson, CERA senior director. "But with this opportunity comes the challenge of developing adequate gas supply resources and infrastructure to meet what could grow to be a 25 or even 30 trillion cubic foot market in the United States over the next decade."

Five features of the demand growth challenge pointed out by the report are:

  • The industry's success in convincing the market gas is a safe, reliable and plentiful fuel. "Customers have gotten the message: natural gas use is rising in industrial applications and gas is winning the battle as the fuel of choice for new home hookups," the report reads.
  • Gas reserves have not risen with production although over the past decade North American gas production has risen from 20.2 Tcf to 26.2 Tcf per year, implying a 30% increase in the requirement to find and develop new supplies just to replace reserves. The industry's reserve-to-production ratio has declined to less than 12-to-1. "But the combination of higher production and a lower reserves-to-production ratio means a growing requirement to develop new supplies each year."
  • New infrastructure will be needed to connect new supplies with growing markets. "This need will be most pronounced in regions where gas has had a lower market penetration, such as the U.S. Northeast and Southeast. It will also require new infrastructure to connect new supply areas - such as the deep-water Gulf of Mexico, Atlantic Canada, and possibly even Arctic gas."
  • Unbundling and retail choice. "The industry also faces the challenge of a radical restructuring of its interface with customers, as unbundling pushes further downstream to reach retail distribution for small customers."
  • Gas and power convergence. "Although convergence has not gone so far as to subsume the gas industry within the power industry, the necessary connection between gas and power is growing ever closer." Factors causing this are growing use of gas in power generation, integration of gas and power in the distribution sector with a growing connection likely in billing, metering and customer information systems, and the bundling of multi-commodity products by energy service companies in attempts to serve a wider array of customers.

Andersen and CERA said significant new risks are involved in developing the gas infrastructure. "Many in the gas industry are focusing on the specific areas where they are skilled at managing risk and creating value. However, without the regulatory safety net, risk-sharing mechanisms and new alliances are increasingly in vogue," said Everett Gibbs, managing director of gas industry services for Andersen. "As the market matures, opportunities to create value will inevitably move downstream, often in a retail context."

Total North American gas consumption has grown by nearly 3% annually in the last decade, increasing from 19.9 Tcf in 1987 to 25.8 Tcf in 1997, the report said. The United States accounts for 85% of total North American consumption. Industrial power generation, mainly cogeneration, has fueled a 57% increase in gas consumption in the industrial sector since 1986. Growth in energy intensive industries such as paper, steel and refineries also has increased industrial use of gas.

North American gas production has increased to 26.2 Tcf in 1997 from 20.2 Tcf 10 years earlier. Canada contributed nearly half of this increase and has more than doubled its production to 5.6 Tcf, Andersen and CERA found.

In the United States, the rate of production has become more consistent throughout the year to support rising use of gas for power generation in peak summer demand months, with the typical seasonal drop in production falling from 4.8 Bcf/d in 1987 to about 1 Bcf/d in 1997.

Joe Fisher, Houston

©Copyright 1998 Intelligence Press, Inc. All rights reserved. The preceding news report may not be republished or redistributed in whole or in part without prior written consent of Intelligence Press, Inc.

Copyright ©2018 Natural Gas Intelligence - All Rights Reserved.
ISSN © 2577-9877 | ISSN © 1532-1266
Comments powered by Disqus