The outlook for North American natural gas was “never better”than now, says the top Shell E&P executive. Among the factorsworking in the favor of gas are strong demand from powergeneration, environmental imperatives, integration of the NorthAmerican market, new supply sources and rising prices.

Shell Exploration and Production Co. CEO Walter van de Vijverset the tone for Ziff Energy Group’s North American Gas StrategiesConference in Houston Monday. “There will be more new gas demandover the next 10 years than there has been in the past 20 years inthe U.S. alone. Equally strong growth in Canada and Mexico createenormous opportunities for our industry.”

His remarks were in sync with findings of the latest Ziff Energygas industry survey. The survey of 124 companies found slightlymore than half of U.S. producers responding expect to produce atleast 5% more at the end of this year, and 19% expect productionincreases exceeding 15%. In Canada, more than 70% of respondentsexpect to grow production by 5% or more, and 25% expect theirproduction to increase by more than 15%.

Nearly all, 94%, of the Ziff survey respondents said they expectNYMEX gas prices to end the year above $2.73, and 40% expect Nymexprices to close above $3.13. Respondents expressed concern that gaswould become non-competitive for power generation at burner-tipprices of $3.50/MMBtu, a significant rise from last year’s estimateof $2.75 to $3/MMBtu.

Van de Vijver and others said the industry must grow its supplybase to meet the coming demand for gas. The deep-water Gulf ofMexico, although “oilier” than originally thought by Shell, is onesource, offshore eastern Canada another. Supply frontiers alsoinclude Alaska and arctic Canada, assuming it someday becomeseconomic to transport gas from such a distance. Mexico’s role inthe North American market probably will grow but remains to beseen.

Although it still only accounts for a sliver of the market,liquefied natural gas (LNG) has seen robust growth. LNG imports atCMS Energy’s Lake Charles, LA, terminal set a new record at 27cargoes last year. The company predicts it will bring in nearly 30cargoes this year and 100 in 2010, said Ziff speaker William J.Haener, CEO of CMS Gas Transmission and Storage Co. “I think wewill see a significant trend to increased LNG usage.” He alsopointed to emerging gas-to-liquids technologies and saiddistributed generation will be playing a role in the development ofthe gas market.

Although his company grew its Gulf of Mexico production by 30%last year, Kerr-McGee Vice president for Gulf of Mexico operationsDavid A. Hager is pessimistic about the Continental Shelf’s future.Half of Kerr-McGee’s Gulf production came from the Shelf, and”there’s still a lot of money to be made” on the Shelf, but Hagersaid he’s expecting to see steep declines there. “My conclusion isShelf production will be ugly, and it’s going to go down rapidly.”

The industry is now faced with targeting new, more challengingsupply sources at a time when capital is tough to come by,particularly in light of investors’ fascination with dot-comstocks, speakers lamented. “Longer lead times and higher capitalintensity will hinder the industry’s ability to respond quickly tochanges in market conditions,” said van de Vijver. However,”stronger gas prices are here to stay.

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