The talk of a Gulf of Mexico gas boom seems to have subsided inrecent weeks, replaced by more reserved comments about reservedepletion, flat production and growing market demand. Some arewondering out loud about the industry’s ability to keep up whileweak oil prices and high rig costs may prompt some to attenuateGulf spending plans. Some majors, such as Amoco, are askingequipment and services suppliers to cut their rates in light ofweak oil prices lest high costs temper Gulf activity.

According to one executive with a small producing company, thegas market has eaten up a deliverability surplus fostered by yearsof regulation, and the exploration and production side is now facedwith replacing production declines while meeting growing marketdemand.

“The North American natural gas market has evolved over the last15 years from a fixed-price, variable-volume to a fixed-volume,variable-price market,” said Buddy Kleemeier, chief operatingofficer with Tulsa, OK-based Kaiser-Francis. “During the time framewe’ve experienced U.S. gas market growth from 16 Tcf in ’86 to 22Tcf in ’97 while reserves are at a practical minimum to maintainsupply. In my view, the North American natural gas market hasreached uncharted waters. That is to say for the first time in ourhistory, the EandP industry will have to meet the challenge ofsupplying what appears to be an ever expanding market demandwithout having pent-up extra supply from 50 years where reservedevelopment with associated extra deliverability was encouraged.”Kleemeier spoke last week at the Natural Gas Supply Association’sexecutive conference in Houston.

Looking ahead, Kleemeier made 1998 demand projections for Canadaand the United States. Based on 4%/year growth, Canadian demandshould be about 2.8 Tcf. Based on domestic growth of 1.5%/year,U.S. demand in 1998 should be about 22.03 Tcf. Adding the twoyields 1998 North American demand of about 24.83 Tcf, or about 68Bcf/d, representing a 1.2 Bcf/d increase over 1997. “During 1997,we as an industry needed to replace right at 10 Bcf/d in the U.S.and 4.5 Bcf/d in Canada for a total of about 14.5 Bcf/d to keep upwith depletion. Further, we needed to develop 1.2 Bcf/d of newsupply to meet expanded market demand for a total of 15.5 Bcf/d ofsupply.”

New U.S. and Canadian wells historically average about 1 MMcf/din gross gas, Kleemeier said. “Therefore, we as an industry neededto drill about 15,500 gas wells in the United States and Canadaduring 1997 to be in shape to meet the 1998 market demand.”Preliminary figures show about 4,400 wells were drilled in Canada,and about 10,880 U.S. wells were drilled. “And, strangely enough,if you add that up it’s about 15,500 wells. Assuming 1997 averagewell deliverability is at least as high as historical averages, itappears we have just enough supply developed just in time to meet1998 demand.”

Just enough clearly doesn’t denote a situation of more thanenough where excess could fuel more and more gas-fired powergeneration and become a panacea for global warming and CO2 worries,according to Luke R. Corbett, CEO of producer Kerr-McGee. “Todaythere seems to be a consensus among those who don’t actually haveto search for and produce natural gas that there could be anunlimited supply of that commodity available at about $2/Mcf,”Corbett said recently at the Cambridge Energy Research AssociatesExecutive Conference in Houston (please see NGI 02/16/98, p.1).

The burst gas bubble and higher-revving EandP engine aren’tnecessarily bad, according to Roland George, an economist andassociate with international energy consultant Purvin and Gertz. Infact, they’re part of a cycle. “There is an economic level ofinventory. Producers don’t want 20 years of inventory in theground.”

While there aren’t enough rigs to fill the upcoming Canadianpipeline capacity immediately, it will happen. George believes 7.5Tcf/year out of western Canada by 2010 is a sustainable level ofproduction. The region currently produces about 5.6 Tcf/year.

“So there is room to grow on the supply side. The constraint isone of timing in terms of availability of rigs. You don’t haveenough rigs to be able to fill those pipes immediately.”

George is equally under-whelmed by cautionary comments on theGulf. High day rates for rigs will inspire new construction, andeverything will come back in line. “We saw that in western Canadawhere there was a 12% increase in the rig fleet, and that was adirect consequence of the day rates the drillers could charge fortheir services.”

Joe Fisher, Houston

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