In a new study forecasting gas supply and demand over the next15 years, GRI said demand will reach 32.7 Tcf by 2015, but theindustry will have to adapt to changing consumption patterns inorder to take advantage. The results of the report, titled “GRIBaseline Projection of U.S. Energy Supply and Demand to 2015, 2000Edition,” were released last week at the National Press Club.

Overall, the GRI predicted a 1.3% annual increase in totalenergy consumption from 94 quads in 1998 to 118 quads by 2015.

“While GRI’s 2000 Baseline Projection outlines a positiveoutlook for the natural gas industry, it sounds a call for changein the gas industry,” said Paul Holtberg, group manager for the GRIBaseline Center. It “will need to undertake key investments andmake significant changes in operational practices to meet theanticipated growth resulting from a fundamental shift inconsumption patterns. The process will not be easy and will includean element of risk.”

The demand increase represents an annual growth rate of 2.6%,which is about 60% faster than the rate of anticipated growth fortotal primary energy demand. Like many demand studies publishedrecently, the GRI report said the driving factor will be electricgeneration, which the study forecasts to grow from 3.7 quads in1998 to 8.9 quads in 2015. The report predicts that 44% of the gasdemand growth through 2015 will be gas demand for electricitygeneration. Industrial gas demand took second place, with predictedgrowth from 9.8 quads in 1998 to 13 quads by 2015, representing 27%of the overall gas demand.

The “fundamental shift in consumption patterns” that Holtbergalluded to will occur in the electric generation sector as merchantgeneration capacity is predicted to challenge central utilitygenerating capacity as the main driver of electric generation.Utility generating capacity will fall from 735 GW in 1998 to 530 GWin 2015. On the other hand, merchant generating capacity isexpected to balloon from 40 GW in 1998 to 430 GW by 2015. To reachthese levels, the GRI estimated that of the 125 GW of currentlyproposed merchant generating capacity, only 80 GW will beconstructed.

The GRI also said distributed generation capacity (capacitygenerated by units with output of no more than 100 MW) will grow”very rapidly” over the next 15 years, from 28,000 MW in 1998 to75,000 MW in 2015. The vast majority of this growth will be frommicroturbines and fuel cells, which will account for 28,800 MW ofthe growth during the forecast period.

The report says the average size of a generating facility willfall from around 95 MW in 1995 to about 75 MW by 2015.

“The smaller average size generating unit and the larger numberof customers will increase the gas industry’s cost of servingelectric generation customers,” the report said. “With a largenumber of generators, service offerings by the gas industry arelikely to become broader to match the varying needs of customers.”It added that with a larger number of smaller generating units,potential exists for greater volatility in both daily and monthlygas loads as customers make independent decisions about plantoperations.

Along with growing demand, the GRI predicted a price increasetrend over the course of the study period. Price “peaks areexpected in 2007 and 2011, while “valleys” are forecast for 2004and 2009. Lower-48 gas prices are projected to increase from$1.95/MMBtu in 1998 to $3.05/MMBtu by 2015.

Will there be enough supply to accommodate the growing demand?The report indicates needed supply will come from growing outputfrom the deepwater Gulf of Mexico and from Canadian imports.

While Gulf of Mexico Shelf production continues to declineduring the study period, deepwater and ultra-deepwater productionmore than make up the difference. The result is an overall increasein Gulf of Mexico output from around the current levels of 4.9 Tcfto more than 8 Tcf in 2015. The 3.1 Tcf increase accounts for 29%of the supply growth in the study period.

In Canada, slight declines in Alberta production will be offsetby increases in eastern Canada and British Columbia. Canadianproduction is expected to increase from just over 5 Tcf in 1998 to7.7 Tcf in 2015. GRI did not include production estimates from theMackenzie Delta, Fort Liard or Sable Island areas in itsassessment.

The report also includes analysis of crude oil prices, nuclearcapacity, and changing production methods. For more information onthe study, call the GRI Baseline Center at (703) 526-7832.

John Norris

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