Available natural gas capacity in the Lower 48 states this year appears “sufficient” to meet the level of demand, but the relatively narrow margin of surplus capacity may be limited if there are “sudden” increases or drops in either production or demand, thus setting up the potential for short-term price hikes, according to a report by the Energy Information Administration (EIA).

In the latest edition of “Natural Gas Productive Capacity for the Lower 48 States,” EIA noted that surplus capacity is about 10% of the projected 51.4 Bcf/d average production rate required to meet gas demand in 2003, which may limit the available production response for sudden changes, such as drops in production or unexpected increases in demand.

“An important issue facing the U.S. natural gas markets is whether or not natural gas production will rise to meet expected growth in demand,” EIA wrote. “However, lags of several months in the availability of natural gas production data, and the fact that production data tends to be revised upward over time, leaves considerable uncertainty regarding the supply response resulting from current drilling levels.”

Maintaining or increasing gas well drilling is “critical to maintaining or increasing gas productive capacity,” according to the report. Wells that have been producing for one year or less contribute between 25%-30% of total wellhead capacity. The largest supply areas, Texas and the Gulf of Mexico, which together produce about 50% of the nation’s total gas production, also have the highest percentage (30%) of wellhead capacity from wells one year old or less. In the unlikely event that drilling came to a halt for some reason, EIA found that “all surplus or unutilized wellhead capacity would vanish in less than a year.”

Recent trends in productive capacity have closely tracked the number of well completions, EIA noted. In 2001, there was a large increase in completions, reaching 22,800, while last year there were only 17,000 well completions. “A large increase in completions is projected for 2003, about the same increase as in 2001, and effective productive capacity is projected to increase by about 2 Bcf/d,” EIA said.

Decreasing surplus capacity is expected offshore in the Gulf of Mexico this year because of lower drilling levels, but EIA added that “higher productive rates of recent discoveries in that area could increase capacity.” Other increases are “possible” in the Rocky Mountains, as more pipelines are constructed to transport gas from coalbed methane wells.

The Rocky Mountains are projected to have the largest estimated surplus capacity in 2003, at 1.4 Bcf/d, followed by Texas with 1.3 Bcf/d, New Mexico at 0.5 Bcf/d, and Oklahoma at 0.4 Bcf/d. Estimated surplus capacity in the rest of the Lower 48 and Gulf of Mexico is roughly 2.0 Bcf/d.

“Because of exceptional growth in well completions in the Rocky Mountain area, growth in effective productive capacity in that region is expected to be limited in the short term by a slower growth rate of the delivery infrastructure,” EIA noted. “Based on historical experience, infrastructure capacity was assumed to grow at approximately one-third the wellhead productive capacity growth rate. This limitation reduces estimated Rocky Mountain surplus…in 2003 from 2.7 to 1.4 Bcf/d.”

EIA noted in the latest report that until 2001, its projections were made “by summing the maximum measured monthly production rates of each well in each year (wellhead capacity), tacitly assuming that all wells could produce maximally at the same time.” However, EIA decided to review its historical data and found that “all wells cannot produce at their wellhead capacity at the same time” for several reasons, including the following:

Since reviewing the data, EIA now calculates an “effective productive capacity, which better reflects the ability of producing wells to deliver gas into the gathering and transportation system. Projections from this methodology will not be exact but are within reasonable accuracy to provide a better indication of surplus or unutilized effective productive capacity.”

The latest study, said EIA, used average monthly values, which do not reflect phenomena — such as a severe cold snap — that might push production to full capacity (100% utilization rate) for a short time. Monthly peak winter natural gas demand is usually 1.5 times or greater than natural gas production; the deficit is met by withdrawals from natural gas storage and imports. “Potential uncertainties of up to several percent may exist in some monthly production and effective productive capacity estimates used in this study.”

To read the full report, visit EIA’s web site at www.eia.doe.gov/oil_gas/fwd/ngcap2003.html.

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