Cambridge Energy Research Associates (CERA) released findingsyesterday that North American gas production capacity will weakenthis year – possibly by as much as 500 MMcf/d – due to cutbacks indrilling and exploration brought about by low oil prices.

“We had previously expected a gradual increase in U.S. gassupply but several factors have reversed the outlook,” said RobertEsser, CERA senior consultant and director for global oil and gasresources. Factors cited by Esser include accelerating declinerates in Gulf of Mexico production on the Continental Shelf thatare offsetting new supply coming from the deep water. Also citedwas a 33% decline in overall gas-related drilling and a 70% drop inoil-related drilling. As much of Gulf gas production comes in theform of associated gas, oil drilling is critical to the gas supplyoutlook, other CERA speakers said.

“Into 1999 we expect a more dramatic decline, maybe as much as ahalf a Bcf/d. This doesn’t seem like a lot, but it’s a directionthat’s important..”

According to CERA, post-2000 gas supply capacity is expected togrow again, prices are expected to remain weak in the first half ofthis year, possibly beginning to recover in the second half of thisyear and into 2000. Canada is expected to become even moreimportant to North American gas supplies. Canadian gas activity isexpected to enjoy continued strength this year and next in spite oflow oil prices. “The irony for Canadian producers is that with therecent addition of pipeline capacity, western Canadian prices havebeen reconnected with the broader North American market at a timeof price weakness,” said Ed Small, CERA director of Canadianenergy.

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