NGI The Weekly Gas Market Report
If the U.S. government would allow energy companies to drill onmore federal lands in the Rocky Mountain states, natural gasproduction could increase and prices then would fall, according toa report issued last week by the Energy Information Administration(EIA), the U.S. Department of Energy’s statistical agency.
The Rocky Mountain basins — which have become a hotbed ofactivity for coal-bed methane gas — are estimated to hold 235Tcf, of which about 108 Tcf, or 45%, is located on federal landsthat are off limits to drilling and exploration by energyproducers.
EIA, in its report “Accelerated Depletion: Assessing Its Impactson Domestic Oil and Natural Gas Prices and Production,” said thatincreasing the access to the restricted area “could provide newfields to replace older fields and serve as a potentialcountermeasure to the effects of depletion on total U.S.production.” The report said that with current drillingrestrictions remaining in place, natural gas production in theRocky Mountain basins would increase to only 2.7 Tcf a year by2020, up from 2.1 Tcf a year now.
The report was undertaken after six trade organizations for oiland gas producers sent a letter to Secretary of Energy BillRichardson, which raised concerns about the effects of depletion onfuture oil and natural gas supply, and how future production may bemore difficult than previously thought. The trade organizationsincluded the American Petroleum Institute, Domestic PetroleumCouncil, Independent Petroleum Association of America, U.S. Oil andGas Association, National Ocean Industries Association and theNatural Gas Supply Association.
In its final report issued last week, EIA said that “whilenatural gas wells drilled in 1972 declined from their peak at anaverage rate of 17% per year, natural gas wells drilled in 1996have been declining at an annual rate of 49%. At the same time, theratio of natural gas production to the level of proved reserves —resources that have been identified and are ready to be developed— has increased from 15.7% in 1991-1992 to 18% in 1997-1998.”
Pointing out that the Rocky Mountain basin might be a potentialarea to explore and develop, EIA said “.the periodic opening ofentire new areas to exploration and development has balanced theeffects of resource depletion in the past.” It said that “new”frontiers in Alaska and the deep waters of the Gulf of Mexico weretwo reasons why exploring in new areas would be important.”Increased Rocky Mountain access and improved productivitytechnology could ameliorate the effects of accelerated depletion.”
Assuming Rocky Mountain producers were given greater access, theEIA predicted that the annual gas productivity of the Lower 48would increase from 18.7 Tcf in 2005 to 23.2 Tcf by 2020. If rapidadvancements in productivity technology were added to the mix, theagency projected Lower 48 annual gas production will soar to 29.2Tcf by 2020. This compares to 22.5 Tcf by 2020 absent any action tostem the accelerated pace of well depletions.
An even sharper impact would be felt on national wellhead pricesif the scenario (improved land access and technology advancements)exists, according to the EIA. It projected that wellhead priceswould decline to about $2.22/MMcf by 2020, which is almost half ofwhat they would be ($4.12/MMcf) if the depletion rate remainedunchecked. At $4.12 MMcf, the study said gas consumption would dropabout 9% as a result of gas customers switching to oil and coal. Toaccess the entire 95-page report, see EIA’s website atwww.eia.doe.gov.
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