The Department of Energy (DOE) Friday released the final phase of a two-part analysis of the natural gas market in the U.S., which indicated that prices should continue to decline through next year and supplies are expected to increase. The study also “clearly shows that the natural gas difficulties of 2000 were not caused by a fundamental inadequacy in the marketplace, such as a serious limitation in stock levels, but by an increase in demand overlaid with a shortage of supply,” Secretary of Energy Spencer Abraham said.

“EIA’s analysis is welcome news for U.S. consumers and for our economy,” he added. In April, tasked the department’s Energy Information Administration (EIA) to conduct the study because of broad concerns about tight supplies, volatile prices, and regional price disparities. The first part of the study was released in May.

EIA’s final phase found that natural gas prices are expected to continue declining from $4.09/Mcf in 2001 to $1.96/Mcf in 2002, while supplies should increase from 22.45 Tcf in 2001 to 23.53 Tcf next year. The analysis also determined that natural gas prices have declined substantially because additional drilling, mild weather and a slowing economy have reduced the growth in natural gas consumption.

The EIA said prices have returned to levels consistent with historical patterns, and significant price reductions and record storage additions have occurred since May 2001. Taken together, these factors indicate that the U.S. natural gas market contains self-correcting mechanisms associated with well functioning markets.

EIA’s analysis also explored the probable resources that are still tied up on restricted federal lands. For example, the study showed that there is currently 293.3 Tcf of unproved Rocky Mountain natural gas resources, but the land is subject to a variety of restrictions. Of that amount, 33.6 Tcf is officially off limits, 57.7 Tcf is considered “de facto” off limits because of the prohibitive effect of compliance with environmental and pipeline regulations.

Of the remaining 202 Tcf, 50.8 of that is located in federal lease areas where increased development costs and an extended development schedule can be expected. The remaining 151.2 Tcf of unproved Rocky Mountain natural gas resources are either on federal or private land, and are accessible pending the proper lease agreement.

As of Jan. 1, the study estimated the total undiscovered, technically recoverable natural gas resource in the entire lower 48 Outer Continental Shelf (OCS) at 233.7 Tcf. Currently, the total inaccessible portion amounts to 58.2 Tcf, with 18.9 Tcf in the Pacific, 28.0 Tcf in the Atlantic, and 11.3 Tcf in the Eastern Gulf of Mexico. The remaining 175.5 Tcf of fully accessible lower 48 OCS resources are located almost entirely in the Western and Central Gulf of Mexico, with 1 Tcf in the Eastern Gulf of Mexico, the study showed.

The study also found that LNG imports are expected to become a larger source of the natural gas supply for the country. The reference case for the analysis was EIA’s Annual Energy Outlook 2002 (AEO2002), which projected net LNG imports to grow from 0.2 Tcf in 2000 to 0.8 Tcf by 2010, leveling off at that mark through 2020.

The EIA said LNG has become a more viable source of future natural gas supply because of the extent of world natural gas resources and the significant decline in LNG costs in all segments of the supply chain. As of Jan. 1, 2001, the study showed that 10 countries held 77% of the world’s natural gas reserves (4,043 Tcf out of 5,278 Tcf), with Russia, Iran, and Qatar accounting for more than 55% (2,906 Tcf).

On the topic of the nation’s natural gas transmission infrastructure, the EIA said in its study that “in light of the available capacity and capacity utilization patterns, it seems unlikely that the natural gas infrastructure played a significant sustained role in the price spikes of 2000 and early 2001. The available volumes of natural gas simply were inadequate to satisfy total demand. The delivery system moved as much gas as was available to customers, albeit at prices higher than were typical through the 1990s.”

Within the 93-page report, the EIA also said that there was the need for improved data on natural gas. “The accuracy, timeliness, and detail of data series and products are important in providing adequate information for market analyses and policy decisions,” the study said. “Restructuring and growth in the industry, which began during the mid-1980s, expanded the number of market participants and changed business practices, requiring the design of new data collection instruments, increased efforts to identify industry participants, and greater effort by EIA and industry to assure data quality.”

With the vast addition of players, the EIA said greater data timeliness is “desirable,” which means that reliance on outside data sources such as those used for production data, wellhead price data, and imports data “must be reviewed.” The EIA went on to say that some data elements that have only been collected annually may now need to be collected more often.

However, the EIA warned that although the mid-term outlook for U.S. natural gas markets and prices seems relatively stable, there still remains a key challenge for the domestic gas industry in the long term. As stated in the earlier EIA report, the challenge remains “moderating the recurrence and severity of ‘boom and bust’ cycles while meeting increasing demand at reasonable prices.”

The final report is titled “U.S. Natural Gas Markets: Mid-term Prospects for Natural Gas Supply.” to view a copy visit https://www.eia.doe.gov/oiaf/servicerpt/natgas/pdf/sroiaf(2001)06.pdf. The interim report is titled “U.S. Natural Gas Markets: Recent Trends and Prospects for the Future.” It can be viewed at https://www.eia.doe.gov/oiaf/servicerpt/naturalgas/index.html.

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