Natural gas supply can be adequate for the expected demand in the future from power generators as well as LDCs, as long as rigs remain in the ground and the industry pays attention to indicators, according to Bruce Henning, director of Energy and Environmental Analysis Inc. (EEA) at the Energy Bar Association’s 55th meeting in Washington, D.C. last week

On the supply side, “what you had is a low price environment for the decade of the nineties,” said Henning. “You had producers focusing on trying to figure out how to survive through this low-price environment. One of the major ways that they did it was they improved their overall technology and accelerated the production of natural gas.”

On a normal reserve area that might take five-to-six years to drain, the producers used techniques such as horizontal drilling and fracturing technology “to try to blow that gas out of that resource as fast as they could,” Henning said, thereby improving the project’s overall economics. “In a sense it was the adopting of a ‘just in time’ sort of inventory practice by the production industry in order to control their costs and be profitable in a low price environment.” This strategy during the last few warmer than normal winters helped create the “perfect storm,” when prices soared during the cold winter of 2000-2001 due to increased demand, and a supply shortage.

“Right now, drilling activity is responding and we are going forward bringing the market into balance, but demand is rushing up just as fast,” Henning said. “So in order to suck up that demand, the industry will have to look for new areas and further development in order to grow the overall productive capacity. It will require substantial new development from the Gulf Coast, Canada, and the Rocky Mountains, as well as Liquefied natural gas (LNG).” Henning pointed out that there is approximately 137 Tcf of gas in the Rocky Mountains that has some degree of access restrictions, 24 Tcf in the eastern Gulf, and 21 Tcf and 31 Tcf off of the Atlantic and Pacific seaboards, respectively. Going forward, Henning said prices will remain volatile.

Henning remains positive on the future, however. “The gas production is responding to the overall levels of this past winter,” he said. “It was an unusual confluence of events, but will it happen again? I don’t think so, but it is possible.

“Because of the growth in power generation demand, [we will be] maintaining a very tight market for the coming decade,” said Henning. “And tight markets mean that your going to have the possibility of very volatile price movements over that time. Really, the chances of a persistent bubble coming back again are relatively small.”

According to the Energy Information Administration (EIA), there will be a 3.9 Bcf/d gas demand increase in the Northeast region alone by 2010. “Electric demand represents over 70% of projected demand in the Northeast,” said Carl Levander, vice president of regulatory & strategic initiatives for Columbia Gas Transmission Corp., speaking at the conference.

Capital requirements are also another sticking point, especially for pipelines and distribution companies. Henning said if you add the pipeline and distribution investments, it is much less than the total investment requirement for production.

“The resource is there, the technology is there, and under a price environment that is in the range of $3 — not $10, but not $2 — the economics are there in order to bring those gas reserves forward over the next decade.”

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