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NPC Study Predicts 32% Gas Demand Increase

December 20, 1999
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NPC Study Predicts 32% Gas Demand Increase

Members of the National Petroleum Council (NPC) overwhelmingly approved a report last week by its natural gas committee forecasting a 32% increase in gas demand over the next decade, and saying the nation could get that gas for 40 to 50 cents less if producers are allowed to access currently restricted areas.

Titled "Meeting the Challenges of the Nation's Growing Natural Gas Demand," the study will be used as a platform for member companies to lobby for increased access to protected producing areas, more comprehensive research and development projects and increased funding.

"We're stressing the use of this study for education," said Rebecca Roberts, chair of the NPC's coordinating subcommittee. "Our members can take the study to their members of Congress and use it to prove their points. Now that it's being published, we expect its effects to start occurring as soon as possible."

The report includes seven major recommendations which the NPC members agreed to pursue. Chief among these recommendations is to call for the government to set up an interagency work group under the National Economic Council, which will establish a strategy at the highest level for natural gas in the nation's energy portfolio. Both the NPC and the Department of Energy (DOE), said the recommendation is already being explored on both sides. T.J. Glauthier, a deputy secretary of energy, said he would propose the idea to both Bill Richardson, the energy secretary, and John Podesta, the President's chief of staff. Other recommendations include establishing a long-term approach to developing the gas resource, heavily investing in R&D projects and focusing on capital, infrastructure and human resource needs.

The report took a decidedly bullish stance on the demand situation. Besides the 32% increase, which would have the industry reaching 29 Tcf demand by 2010, it also said actual demand had exceeded a study done by the NPC in 1992 by more than approximately 1 Tcf. Going forward, the study said demand growth will be 47% driven by electric generation, with industrial demand commanding 23% for second place.

One of the study's main thrusts, which the NPC members said they would address, was the issue of access to production. According to Travis Stice, a regional engineer for Burlington Resources and the presenter of the supply-side findings of the report, 213 Tcf of supply exists with restrictions in the lower-48 region. The lion's share of that total, 137 Tcf, is located in the Rocky Mountain region. The restrictions include a wide range of obstacles from untouchable parkland to high-cost drilling. The access issue was the first on the list of critical factors included in the study.

"The resource base will be one of the key price drivers in the future," said Roberts. "We [looked at] two distinct cases in the study; one with increased access [to the restricted areas] and one with reduced access...In the case of increased access, prices were lowered between 40 and 50 cents in the outer years."

For Harry Vidas, managing director for the company involved with the data modeling of the study, Energy and Environmental Analysis Inc., the access issue had the largest impact on prices compared to all the other criteria. "The two more important issues are the access and the R&D funding. They are at the top of peoples' lists. When they go talk to the government they want to get the access issue across because it has such an effect on supply and price."

On the transportation side, the report found that 38,000 miles of transmission pipe and 255,000 miles of distribution pipe will be needed to accommodate this demand, resulting in an estimated $123 billion in investment capital over the course of the study period. Storage capacity will need to be expanded by 850 Bcf, and 30 Bcf of interregional pipeline capacity will have to be added as well. Much of the need is fueled by growing peak-day demand, which will exceed current capacity by 2005 unless new pipe is built.

Access issues arise in this sector as well, as many recent pipeline projects have come under heavy fire from government regulators and landowners. Susan Ortenstone, the presenter of the transmission-side findings and vice president of El Paso Gas Services, used the embattled Independence Pipeline project as an example (see separate story, this issue). Despite these numbers, the study found that the transmission sector should not be daunted. "Although the rate of growth is substantial, it is not beyond what the industry has done before," Roberts said.

NiSource Chairman Gary Neale, the incoming chairman for 2000 of the American Gas Association, said the AGA generally agrees with the NPC study.

"From the supply side it really shows that we're going to have a lot of natural gas... The study reminds us not to underestimate the expanding resource base that we see in the natural gas industry. We all have a tendency to look at proven reserves as our indication of where we are at, but it's the resource base that we need to look at in the future in addition to the proven reserves.

"The only place we disagree a little bit with the NPC study...is in the price area. The NPC study talks about rapidly increasing prices. We think those prices will be mitigated substantially from the expansion of the resource base, which the NPC study also admits to, but also from the technology side. We are finding gas cheaper today than we ever have. Demand has grown 35% over the past decade, yet adjusted for inflation the price of gas paid by consumers has decreased by 25% and most of that is because of the technology in the way we find gas."

The final report was released last week. For a copy, call Carla Byrd at (202) 393-6100 or contact her through email at cbyrd@npc.org.

John Norris

©Copyright 1999 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.

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