With North American natural gas supply remaining stagnant atabout 71 Bcf/d over the last five years, and an estimated 109 Bcf/dof supply expected to be necessary by 2015, El Paso ChairmanWilliam A. Wise says the time for liquefied natural gas (LNG) hascome.

Even with record numbers of rigs in the ground, El Paso FieldServices’ pipeline gathering receipts have stayed at 4.4 Bcf/dsince January 1998., Wise said at the Howard Weil Energy Conferencein New Orleans. With supply stationary at the 71 Bcf/d mark, Wisefears that gas production in the lower 48 is on a tough treadmill,where production levels are barely covering demand. Well declinerates in the Gulf of Mexico as well as Canada are getting higherevery year. In 1970, Gulf of Mexico decline rates were at 17% peryear, compared to 1996 when decline rates were 49% per year, whilein Canada, decline rates were 20% per year in 1990, but doubled to40% per year by 1998.

Discouraging domestic production results are forcing theindustry to turn to imported LNG. Wise said El Paso is in goodshape to reap the benefits of the advancing LNG swing, with bothits current North American positions and recently revealed futureplans. In February, El Paso announced a major LNG initiative forNorth America (see Daily GPI, Feb. 6), with plans to build sixfacilities over the next five years at a cost of $1.5 billion.Earlier this month, El Paso signed a letter of intent to purchaseLNG from a new Australian production facility to be built byPhillips Petroleum Co. (see Daily GPI, March 9). The deal wouldprovide up to 4.8 million tons of LNG beginning in 2005 for NorthAmerican markets.

Just last week, El Paso’s John Somerhalder II told NGI that LNGcosts, including tankers and regasification, are coming down andbecoming competitive (see Daily GPI, March 22). El Paso projectsthat its own earnings before interest and taxes from LNG areexpected to top $400 million for the period 2001-2003.

At the conference, Wise also predicted gas prices would staywithin the $3-5 range, spurred by electric generation demand. Hesaid he believed volatility would come down in gas and powermarkets, but it would not disappear altogether. A study done byCambridge Energy Research Associates showed that gas demand forelectric power is expected to increase by 9 Bcf/d by 2005, and 27Bcf/d by 2015, he noted.

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