The long-term domestic gas production picture isn’t nearly as dismal as some doomsday Wall Street analysts may want investors to believe, but it’s also not as rosy as the federal government says either, consultants at Energy and Environmental Analysis Inc. (EEA) said last week in an interview with NGI.

The truth about gas production in the United States probably lies somewhere in the middle of these widely divergent reports, according to Kevin Petak, director of energy modeling and forecasting at EEA, a consulting firm based in Arlington, VA.

“There’s going to be [production] growth there. It’s not just going to fall off of a cliff,” said Petak. “Over [the next] 18 years, we have 6% growth. That’s 0.3%/year growth, most of which will be in the Rockies and a good chunk in the deeper waters of the Gulf of Mexico, but the deepwater will have to work hard to offset declines in the [Outer Continental] Shelf.”

The Energy Information Administration (EIA) is predicting 1%/year domestic gas production growth through 2025, but Petak said that’s “completely wrong.”

“We think the whole picture in their Annual Energy Outlook is completely wrong. We don’t see this rather significant growth in North American gas supplies. We think Alaska gas will come in sometime after 2010, and we think it will be a big contributor to supply. But in their Annual Energy Outlook, EIA had this aggressive supply growth in the Lower 48… We kind of looked at their projections and said, ‘Huh, where is that coming from?'”

EEA doesn’t think much of recent data coming out of Wall Street either. Wall Street analysts are forecasting “a big drop in production, but they are not getting a complete sample. There’s a whole bunch of stuff that you have to do [to get an accurate picture]. You have to correct the data,” Petak said.

“I don’t see evidence that production is dropping as much as Lehman Brothers and perhaps others have been saying,” Petak added. “I saw evidence in 2002…where productive capacity was declining, and then in 2003 when prices came back up, the drilling activity picked back up and we’ve seen evidence that production stabilized; it still declined throughout part of 2003 (the first half), but we think it stabilized in the latter half of the year. We see relatively stable production and not declining production.”

Wall Street analysts frequently take their data right from quarterly filings with the Securities and Exchange Commission. That just doesn’t cut it when it comes to getting an accurate picture of domestic gas supply, said Petak.

“You have to keep on top of all the data out there and reconcile it all against each other…, and then work with a model that is a behavioral bottoms-up type of model that tells you how the market should respond and how much producer activity there should be, or there’s likely to be a different price levels and how much consumption there is likely to be at different price levels.

“On the flip side, I can’t offer you any insight as to why EIA is just so bullish on Lower 48 supply,” he said. “EIA does have a model and does have access to the data, although I will tell you the quality of some of their data is pretty suspect.”

According to Petak, EIA supply data often don’t match what EEA has been seeing on some of the same bulletin boards, the state databases and other resources. “It has some erratic trends in it. It doesn’t appear to have non-hydrocarbon gas correctly accounted for. There are a whole variety of issues there.

“EIA to its credit has a very difficult job,” he said. “These are huge amounts of data they are working with, a lot of forms. Reconciling it is a real challenge. They are doing an okay job with that, but then when you come to their modeling, I’m just not too sure why they are so bullish on [production].”

He noted that last year EIA corrected some of its production data. Its monthly data was not matching data from its annual data forms and there were large balancing items to compensate for the discrepancies. “They recognized they had a problem and they corrected this [in the middle of] last year and now their data is a lot better…” but it’s still somewhat suspect, said Petak.

EEA believes the correct picture on North American gas supply shows Lower 48 dry gas production growing slightly from 18.5 Tcf/year in 2002 to 18.7 Tcf in 2005, 19.6 Tcf in 2010 and 19.7 Tcf in 2020.

Canadian production should be seen as flat in 2005 with current levels at about 6.6 Tcf but then increasing to 7.3 Tcf by 2010 after the Mackenzie Delta pipeline is built and ending the next decade at 7.2 Tcf in 2020. EEA projects that Alaskan gas production will basically remain flat though 2010 at 0.470 Tcf/year, but by 2015 after a pipeline to the Lower 48 is built, Alaska production should rise to 2.1 Tcf and by 2020 should reach 2.7 Tcf.

EEA is very bullish on LNG supply, which is expected to reach 5.5 Tcf/year by 2020 from only 0.6 Tcf/year in 2003.

“We think production is going to be flat, but that’s somewhat misleading because it is shifting to new frontiers, to new areas,” said Petak. “We think this will be the trend for the foreseeable future, where we are going to shift away from traditional areas and over to new frontiers, and that’s partly why there is pressure on gas prices, because supply is having to struggle to keep up with demand and these new frontiers are generally more expensive and more capital intensive.”

He noted that the trend in the United States shows production in the traditional areas going down and production from the new producing horizons going up. The traditional areas include the Outer Continental Shelf in the Gulf of Mexico, the Midcontinent and some areas in Texas and Louisiana where production is mature and basins have been developed over a long period of time. The San Juan and Permian Basin are expected to produce flat production levels for the foreseeable future.

The new frontiers include the deeper waters of the Gulf (200 meters or greater), the Rocky Mountains, Alaska, the Mackenzie Delta and LNG.

The big question for the gas industry going forward will be about supply rather than demand, said Petak. “The United States is in a little bit of box,” he said, because of the amount of new gas-fired power generation. “Those plants are out there waiting to be dispatched.” The ones that are already built aren’t going away, he noted. “We have to rely on them. It then becomes a supply-side issue — can supply keep up with gas demand? That to me is an issue of fostering growth in LNG imports, bringing on Mackenzie Delta and then bringing on the longer-term Alaskan gas.”

©Copyright 2004 Intelligence Press Inc. Allrights reserved. The preceding news report may not be republishedor redistributed, in whole or in part, in any form, without priorwritten consent of Intelligence Press, Inc.