Frontier market activity is increasing across the board forNorth American natural gas producers who have begun pouring moreresources into deepwater Gulf of Mexico, Atlantic Canada and theArctic to complement the increasingly stronger plays onshore.Still, bureaucracy is hindering the ramp up for new exploration andproduction that could hinder supplies into the future, warned someenergy experts last week.

Market forces have finally collided, creating opportunities forproducers to increase production in new areas across North America,said Thomas R. Robinson, managing director of the Cambridge EnergyResearch Associates. Robinson, who shared a panel at CERAWeek 2001in Houston with executives from El Paso Corp., Shell Gas and Power,Devon Energy Corp. and TotalFinaElf, said there is a “new drive todevelop several very prospective, long-term supply frontiers.”

Less than 10 years ago, North American producers were talkingabout inventory management, he said. He now sees a shift in E&Pphilosophy, especially in the past year. Because of consumer pricespikes from a cold winter and problems in certain industrialsectors hit by high gas prices, “now, there is shock, and theresult is reaction.”

Robinson warned that frontier exploration and production stillwill be difficult, but added that “more gas is being developed andprices will come down. It’s not going to happen over night. It’sgoing to take a long time to work through the system, and thispolitical and policy debate on the role of gas in the nation’seconomy and energy mix will continue.”

Devon Energy CEO J. Larry Nichols, who called for opening moreU.S. frontiers to new exploration, said the “day of reckoning camein fourth quarter 2000 when at long last natural gas had the fullattention of the public.” He said the coldest winter in yearscombined with a “supply cushion that had eroded away” was somethingproducers have cautioned about for several years.

“The real crisis occurred two years ago,” Nichols said, whenthere were low natural gas prices and no growth in the industry.”We didn’t develop the frontiers. We didn’t develop the experiencewe need. Now we have a shortage of people. We have a shortage ofdrilling rigs.” Despite the shortfall two years ago, Nichols placedmost of the blame at the feet of politicians.

“Bad government policy” is a fundamental reason for the high gasprices today, Nichols said. “All forms of energy were under attackfor far too long,” he said, referring to the ClintonAdministration’s policy of designating more areas off limits todevelopment, especially areas with suspected natural gas reserves.Nichols said opening the frontiers would be a more difficultproblem to fix, but he said he was encouraged by the BushAdministration’s stance on securing U.S. energy supplies.

“We’re not able to drill wells where we’re able to drill wells.Once the signals are set, industry will respond quickly,” Nicholssaid.

El Paso Corp. CEO William Wise, who said he was concerned aboutthe flat natural gas production over the past several years, saidthe industry faces a challenge in providing deliverability. Thoughhis company concentrates on developing the resources it has, Wisetold the audience that producers “have to hit the frontiers” aspart of an overall plan for the future.

Shell Gas & Power CEO Linda Z. Cook called the United Statesunique in that more than half of its natural gas supply comes fromsmall independent producers, with about 16% from Canada. Toencourage more development, she thinks there will be liberalizationin the marketplace. “There is a clear trend” toward that, she said.

Carolyn Davis, Houston

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