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Arledge: Price Expectations Support 30 Tcf Market

Arledge: Price Expectations Support 30 Tcf Market

The North American natural gas industry can deliver 30 Tcf of gas annually by 2010, but it will take over $50 billion to do it, according to Coastal Chairman David Arledge.

Speaking to shareholders at Coastal's annual meeting last week Arledge said it will take between $32 and $34 billion to build the needed pipeline and storage infrastructure to reach that market. In addition, a 30 Tcf market will require drilling investment of $26 billion by 2010, double recent industry-wide expenditures, he said.

"There is no question that the demand for natural gas will steadily grow in the years ahead. And accompanying that growth will be higher prices.

"In fact, prices have strengthened substantially from the five-year lows we experienced in the first quarter. This reflects the market reality of falling production, reserve declines, and rising demand. While prices could weaken this year, prices are likely to be significantly higher toward the end of the year."

Arledge said Coastal expects prices to average between $2.25 and $2.50 for the next few years. "These prices are sufficient to support the necessary returns for reaching a 30 Tcf market, and will balance supply and demand over the long term."

"I believe the unique regional characteristics of the North American natural gas market offer the best investment opportunity of any energy market in the world. North America contains a vast amount of undeveloped natural gas resources which will provide an economic source of energy for the foreseeable future."

Coastal plans to continue increasing its reserve base and boosting production. To that end, acquisitions are favored over "higher risk" exploration, Arledge said.

In the Gulf of Mexico, Coastal has grown its gas production 636% over the last three years. "We now have an ownership position in 145 blocks and 58 platforms, and operate 41." By the end of the year, he said Coastal expects to have ownership interests in at least 62 Gulf producing platforms. "That's a long way from the eight that we had in 1993.

On the pipeline side, Arledge touted a number of projects to move gas into growth markets, as well as ongoing integration of pipelines into the company's gathering and processing operations. Areas of interest include the Rocky Mountains, the Powder River Basin, as well as Canada (through the Alliance Pipeline) and the eastern United States (through SupplyLink, which will move gas eastward from the Midwest).

Coastal also is active in power generation. "In 1994, we had ownership interests in four electric power plants with a capacity of 337 megawatts net to Coastal. By the end of this year, our net equity capacity will be almost 1,320 megawatts worldwide."

Joe Fisher, Houston

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