The U.S. natural gas demand growth of 2% a year through 2015 will outstrip the 1% growth each year in supply, highlighting the importance of frontier development in the deepwater Gulf of Mexico, Arctic regions and Eastern Canada, according to executives at last week’s Ziff Energy Group North American Gas Strategies Conference in Houston. Liquefied natural gas (LNG) imports also will play an ever-increasing role, with up to a five-fold increase in the next six years, and with better technology, coalbed methane (CBM) also may play a growing role.

The speakers, who joked of “feeding the beast” that has become North America’s hunger for natural gas, agreed that the current conventional gas supply from the quickly depleting basins is not enough to keep up with the population’s growing appetite.

Tim Holt, BP’s vice president for onshore development in the United States, said natural gas demand will grow “inexorably” in the next 10-15 years, at a 2% a year clip, while production will only reach half that target. “There are substantial opportunities for new sources,” Holt said, but to take advantage of them, energy companies need to begin preparing now. Holt predicted that North America will need between 5-15 Bcf/d of new gas supply on top of current production in the next 15 years. “Demand will outstrip supply.”

BP conducted an internal study of the six major North American natural gas basins, which supply 95% of the natural gas. “Our own view is that there are only three growing basins,” Holt said, including the Rocky Mountains, the deepwater Gulf of Mexico and Canada’s western and eastern basins. Sustained growth was found along the Gulf Coast onshore, but “pronounced declines” were seen in the San Juan Basin, the shallow Gulf and in the “Heartland” basins, which include the Permian and Anadarko basins.

“The U.S. rig count doubled in 2000-2001, but it had little effect on production,” said Holt. “It was almost flat across the United States, growing in the deepwater Gulf of Mexico, and shrinking in the basins.”

“It’s inescapable that the frontiers are needed,” said Stephen J. Wuori, group vice president of planning and development for Enbridge Inc. “But for frontier projects to be successful, there’s got to be a lot of innovation,” including more partnerships and cooperation between producers and pipeline companies. By working cooperatively, frontier gas can not only be produced, but it also can be transported with all parties sharing both the risks and the rewards.

David J. Boone, COO of EnCana (formerly PanCanadian Energy), noted there are many opportunities in the far reaches of Canada and the Arctic, including the Scotian Shelf, where only 20% of the total gas reserves have been found. “There also is a sizeable stranded base off Newfoundland,” he said. BP’s Holt said production is expected to increase as exploration moves into deepwater and along “proven fairways,” and he predicted there would more discoveries there in the near future.

EnCana, which has 90% of its production in North America, also has intensified its focus on deeper exploratory drilling in northeast British Columbia and western Alberta. “Without a push to deeper drilling…it will be difficult for production to keep up with supply,” Boone said. He added that there is “cause for concern” with a “treadmill effect,” with production continuing its steady pace but supply falling off each year. “We do believe there are other Ladyferns out there,” he said, referring to the Canadian discovery in the far north. “But they will be at a higher cost with deeper wells.”

Also in its long-term plans, EnCana has begun integrated multi-zone shallow gas drilling to focus on CBM prospects. Though he concedes CBM “dwarfs conventional resources,” the prospects make use of existing infrastructure, which reduces time and costs. “Clearly, there are big technical challenges in bringing it onstream,” but Boone noted that EnCana is optimistic. He noted that CBM accounted for 7% of U.S. production last year; Canada did “nothing until 2000,” which offers plenty of potential.

The far frontier basins, said BP’s Holt, may offer the most potential, but LNG, now considered a “bit player,” will probably become a leading supplier to the United States. “We see that changing quite significantly. The U.S. uses less than 1 Bcf/d currently. We see a five-fold increase in imports from the four (U.S.) terminals in the next five or six years.”

BP’s LNG stake is worldwide, but it also has a growing interest in enlarging its North American position. With contracted marketing from the Cove Point LNG facility, BP also has announced ambitious plans to operate a LNG gasification facility in Trinidad, which Holt said would supply the U.S. market — especially Florida. BP is confident that LNG is “clearly becoming more of a global commodity,” he said, offering as an example that LNG freight carriers — expensive to build and maintain — are currently being built on spec.

Another new supply source will come from depleted regions using improving technology, Holt said. “It will be evolution, not revolution,” using 3-D seismic imaging and fracture simulation, producers will be able to capture more gas from “skinny” shallow wells. “Let’s not lose sight of what’s there in the mature basins.”

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