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:

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. Allrights reserved. The preceding news report may not be republishedor redistributed, in whole or in part, in any form, without priorwritten consent of Intelligence Press, Inc.