There’s no need to worry about sharp drops in gas supply, said Arlington, VA-based investment bank Friedman, Billings, Ramsey & Co. (FBR) in a new report. Gas production from new deepwater projects in the Gulf of Mexico (GOM) and a boom in liquefied natural gas (LNG) imports will be more than enough to carry the load over the next few years and make up for any lasting effect from the current drilling decline.

“Our analysis of new deepwater GOM projects that have come online in 2002 or that are scheduled to come online through 2005, as well as an assessment of the increase in the LNG import market, indicates that increased natural gas deliverability from these two sources alone will significantly mitigate declines in base U.S. natural gas production experienced during 2002 and expected for the foreseeable future,” FBR said.

FBR expects GOM deepwater production and new LNG imports to add 0.9 Bcf/d of incremental supply to the market in the second half of this year compared to the first half of the year. By the fourth quarter, the two sources are expected to add 1.4 Bcf/d of incremental supply compared to deliverability in the first quarter of the year.

Next year GOM deepwater production and LNG imports will increase deliverability by 1.7 Bcf/d compared to 2001, and the increase is expected to continue into 2004 with a peak in the first quarter.

“Consequently, we are of the opinion that the impact of a rally in natural gas prices driven by a production/supply decline has largely passed and that the driver for sustained strength in natural gas prices for the remainder of 2002 will be as much demand driven as it will be supply driven,” FBR said.

Exploration and development activity in the deepwater Gulf is finally “beginning to bear fruit,” FBR said. In contrast to the seven exploration wells and 27 development wells in the deepwater in 1992, in 2001 there were 148 exploration and 60 development wells. According to the Minerals Management Service, gas production from the deepwater Gulf averaged 3.2 Bcf/d in 2001 compared to 2.7 Bcf/d in 2000. FBR predicts it will increase to 3.9 Bcf/d this year and 4.4 Bcf/d in 2003 based on the results of 27 new projects. The deepwater projects expected to come online between 2002 and 2005 are as follows:

  • Nansen — in East Breaks 602/646, operated by Kerr-McGee (50%) and Ocean Energy (50%), this project contains reserves of 140-180 million boe, came online in January and will reach peak production of 40,000 b/d of oil and 80 MMcf/d of gas;
  • Gunnison/Durango — in Garden Banks 667/668/669, operated by Kerr-McGee (50%), Nexen (30%) and Cal Dive (20%), it contains about 250 million boe of reserves, will come online in early 2004 and will reach peak production of 37,000 b/d of oil and 175 MMcf/d of gas;
  • Princess — in Mississippi Canyon 765, operated by Shell (45%), BP (23%, Conoco (15%) and ExxonMobil (16%), it contains 200 million boe of reserves and is scheduled to come online this month with eventual peak production of 100,000 b/d of oil and 140 MMcf/d of gas;
  • Boomvang — in East Breaks 642/643/648, operated by Kerr-McGee (30%), Enterprise (50%) and Ocean (20%), it contains 100 million boe of reserves, is expected to be online this month and reach peak production of 30,000 b/d of oil and 160 MMcf/d of gas;
  • Navajo/West Navajo/NW Navajo — in East Breaks 690, operated by Kerr-McGee (50%) and Ocean (50%), it contains 30 million boe of reserves, is expected to come online this month and should have a peak production of 50 MMcf/d of gas;
  • Aspen — in Green Canyon 243, operated by Nexen (60%) and BP (40%), it contains 40 million boe of reserves, is expected to be online in the fourth quarter and will reach peak production of 22,000 b/d of oil and 25 MMcf/d of gas;
  • Front Runner — in Green Canyon 338, operated by Murphy (37.5%), Dominion (37.5%) and Spinaker (25%), it has reserves of 150 million boe, is expected online in early 2004 and should reach a peak production of 43,000 b/d of oil and 64 MMcf/d of gas;
  • King Kong/Yosemite — in Green Canyon 472/473/517/516, operated by King Kong Mariner, ENI and Noble, it has reserves of 250 million boe, came online in March and should reach peak production of 160 MMcf/d;
  • Atlantis — in Green Canyon 743, operated by BP (56%) and BHP Billiton (44%), it has 575 million boe of reserves, is expected online in late 2004 or early 2005 and should reach peak production of 150,000 b/d of oil and 180 MMcf/d of gas;
  • Mad Dog — in Green Canyon 782, operated by BP (63.6%), Unocal (25%) and BHP (11%), it has reserves of up to 450 million boe, is expected to be online at the end of 2004 and should reach peak production of 80,000 b/d of oil and 40 MMcf/d of gas;
  • Medusa — in Mississippi Canyon 582/538, it is operated by Murphy (60%) AGIP (25%) and Callon (15%), has reserves of 140 million boe, should come online next January and is expected to reach peak production of 36,000 b/d of oil and 40 MMcf/d of gas;
  • Matterhorn — in Mississippi Canyon 243, operated by TotalFinaElf (100%), is it due online in the second half of next year and should reach peak production of 33,000 b/d of oil and 55 MMcf/d of gas;
  • Na Kita — in Mississippi Canyon 474, operated by Shell (50% and BP (50%), it has reserves of 300 million boe, is due to begin in mid 2003 and reach peak production of 100,000 b/d of oil and 325 MMcf/d of gas;
  • Camden Hills — Mississippi Canyon 348, operated by Marathon (50.03%), Total (16.67%) and Pioneer (33.3%), it has reserves of 83 million boe, is due to come online in the third quarter and should reach peak production of 50 MMcf/d of gas;
  • Aconcagua — in Mississippi Canyon 305, operated by TotalFinaElf (50%), Pioneer (25%) and Mariner (25%), it contains 50 million boe of reserves, will begin production in the third quarter and should reach a peak of 250 MMcf/d;
  • King’s Peak — in Mississippi Canyon 173/217 and Desota Canuon 177/133, operated by BP (100%), it has reserves of 17 million boe, is expected online in the third quarter and should reach a peak of 200 MMcf/d;
  • Horn Mt. — Mississippi Canyon 127, operated by BP (67%) Occidental (33%), it has 150 million boe of reserves, is due online in the third quarter and should reach a peak production of 65,000 b/d of oil and 68 MMcf/d of gas;
  • Red Hawk — Garden Banks 876/877, operated by Kerr-McGee (50%) and Ocean (50%), it has 82 million boe of reserves and is scheduled for production in 2004;
  • Magnolia — Garden Banks 783/784, operated by Conoco (75%) and Ocean (25%), it has reserves of 150 million boe, it due online in 4Q2004 and is expected to peak at 50,000 b/d of oil and 150 MMcf/d of gas;
  • Habanero — in Garden Banks 341, operated by Shell (55%), Murphy (33.75%) and Callon (11.25%), it has 100 million boe of reserves, is due online in mid 2003 and should reach 57,000 b/d of oil and 19 MMcf/d of gas;
  • Falcon — in East Breaks 579/580/623, operated by Pioneer (75%) and Mariner (25%), it has reserves of 40 million boe and is expected to begin in early 2003 and reach a peak of 175 MMcf/d;
  • Roaring Fork — in S. Timbalier 316, operated by Mariner, Westport, Noble, it has 55 million boe of reserves, is due online in 4Q2003 and should peak at 10,000 b/d of oil and 40 MMcf/d of gas;
  • Swordfish — Viosca Knoll 917, operated by Mariner (15%), it has 75 million boe of reserves, is due online in 4Q2004 and should peak at 13,000 b/d of oil and 55 MMcf/d of gas; and
  • Marco Polo — in Green Canyon 608, operated by Anadarko (100%), it has 220 million boe of reserves, is scheduled to be online in 1Q2004 and reach a peak of 50,000 b/d of oil and 150 MMcf/d of gas.

Meanwhile, FBR also expects LNG imports to grow significantly, averaging 0.7 Bcf/d this year and 1.1 Bcf/d in 2003, compared to 0.45 Bcf/d in 1999. LNG imports should rise to 0.92 Bcf/d in the fourth quarter of this year, according to FBR. The firm said gas prices have to say around $3 at the Henry Hub for moderate increases in LNG imports to materialize. Stronger domestic gas prices will bring in more LNG.

Expansions planned at the four existing or recommissioned LNG import facilities (Elba Island, GA; Cove Point, MD; Lake Charles, LA; and Everett, MA) should increase peak sendout of LNG to 3.6 Bcf/d by the end of 2005. In addition, 12 new LNG ships (out of 45 new ones ordered and 128 already in operation) are being built for U.S. deliveries. Eight of them are scheduled for delivery in 2003.

Copyright 2002 Intelligence Press Inc. All rights reserved. The preceding news report may not be republished or redistributed, in whole or in part, in any form, without prior written consent of Intelligence Press, Inc.