Echoing one another before the U.S. Senate Committee on Energy and Natural Resources, representatives from production, pipeline and utility companies, as well the Energy Information Administration (EIA), agreed that the current high natural gas prices are a sign that the market is actually working — not broken as some suggest.

In addition, the various witnesses agreed that lifting exploration restrictions in the Gulf of Mexico, the Rockies and Alaska and increasing LNG imports are part of the answer to keeping up with the United States’ growing demand for natural gas.

EIA Administrator Guy Caruso testified that the current U.S. gas market is “extremely tight” because consumption has exceeded supply in recent months. As a result, storage has become depleted and prices have started for the ceiling.

He added that the current price trend is part of the “general volatility” of gas prices in recent years, which he expects to continue for the next 12-18 months. At that time, Caruso said the EIA believes the United States will have greater gross productive capability than it currently does.

This is essential, because Caruso said that by 2025, U.S. natural gas consumption is expected to reach almost 35 Tcf, increasing at an average annual rate of 1.8%. However, despite the expected increase in gross productive capability, EIA numbers point to a domestic production increase of 1.3% annually, reaching approximately 26.8 Tcf by 2025.

This fact will force gas net imports to increase from the 2001 level of 16% of U.S. consumption to 22% by 2025. In addition to imports, Caruso said new sources, which would likely include deep and ultra-deep offshore projects in the Gulf, unconventional gas (tight sands, coalbed methane, shale), the MacKenzie Delta pipeline in Canada and an Alaskan natural gas pipeline that delivers gas supplies to the Lower 48, will also be necessary.

“These changes in natural gas production and delivery will likely result in an uneven natural gas price path through 2025 as major new, large-volume supply projects temporarily depress prices when initially brought online,” Caruso said. He added that the EIA expects gas prices to reach $7/Mcf in 2025.

Following up on the fall off of domestic supply, David H. Welch, president of BP Alaska-Canada Gas said “The North American gas market consumes roughly 25 Tcf of natural gas per year, which is equal to 68 Bcf a day. The North American market is in a state of transition. Historically, the needs of consumers have been met by supply from existing domestic basins, plus imports from Canada. As we examine the current market, we find the performance of supply sources is deteriorating.”

Welch noted that common perception is that U.S. production is declining by 5% a year with Canadian production following a similar trend. “At the same time demand for natural gas continues to grow,” he said. “Consumers are choosing gas for economic and environmental reasons,” Welch added, noting that more than 80% of the new electric power generating capacity is using natural gas.

Welch said traditional sources of gas are unable to keep up with North America’s growing demand as highlighted by the 2000/2001 price spikes. Despite the price run-up, U.S. production attempted, but failed to respond to the spike with drilling in 2000/2001.

Speaking on frontier gas from Alaska and Canada, gas from the Rocky Mountains and increased LNG imports, Welch said “in most cases, policy changes are needed to turn this potential into reality. Government policy needs to lead the way to help expand the natural gas supply.”

Calling this winter “another wake-up call,” Keith O. Rattie, CEO of Questar Corp., noted that prices are back at 2000/2001 levels, when North America was jolted by another alarm clock buzzer. He added that “warmer than normal weather four of the last five years has masked the supply problem.

“The bottom line is we are not running out of natural gas; we are not running out of places to look for natural gas; we are, however, running out of places that we are allowed to look for natural gas,” Rattie added. “By some estimates as much as 40% of our potential natural gas resource base is either off limits or open to development under highly restricted conditions. A ponderous web of laws and regulations prohibit the exploration of natural gas in many areas. Permitting is becoming next to impossible for pipelines anywhere, and for new LNG import terminals.”

On the recent price reporting scandals, Rattie said that reports of market manipulation are a “red herring.” He added that the industry needs to let the market work and not ignore its signals. He noted that volatility lets you know that the market is working.

Testifying as chairman of Atmos Energy and vice chairman of the American Gas Association (AGA), Bob Best advised “lead times are long in our business, and meeting demand years down the road requires that we begin work today.”

In an effort to promote meeting consumer needs, economic vitality, and sound environmental stewardship, the AGA drafted policy recommendations to accompany its testimony to the Senate. For a complete list of the group’s recommendations, visit

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