Skip Horvath, president of the Natural Gas Supply Association (NGSA), last Wednesday said that producers are “less optimistic” than they were a year ago “because we’re losing the access restriction battle,” which he cited as one of the reasons why natural gas supplies remain so tight in the United States.

Specifically, industry has found that the moratoria on land is expanding, Horvath told a media briefing in Washington, DC, related to supply issues facing the North American natural gas market. “We have found that the lease stipulations — that is the time we’re allowed to get to land that we are allowed to get to — are shrinking in time.”

In addition, producers are hitting permitting delays. “For example, in the West, [where it] should take 30 days to get a permit, is now taking over 120 days and that kind of delay is just really hurting our ability to get the gas out of the ground and therefore affecting the prices of natural gas supply,” Horvath said.

He was joined at the press briefing by John Dielwart, chairman of the Canadian Association of Petroleum Producers (CAPP).

Addressing the overall natural gas supply picture, Horvath noted that supply is tight. “You heard that message from Alan Greenspan [last week] — the market is tight; he’s absolutely right.” Greenspan, chairman of the Federal Reserve, commented on natural gas supply issues in an appearance before the House Energy and Commerce Committee last Tuesday (see related story).

Horvath cited a couple of key reasons for the tight gas supply. “One is the supply itself is getting more expensive for technological reasons because of decline rates,” he said. Access restrictions are also a contributing factor. “If you look at the environmental permits in the U.S. Pacific offshore, for that matter in the Rockies, that’s a policy problem, a restriction of access to lands that is preventing us from getting gas that would otherwise help alleviate the tightness of supply.”

Meanwhile, turning to storage, the NGSA president noted that “we are filling right now at a rate that’s much higher than the average rate we’ve ever filled at before.” Horvath pointed out that last week’s fill was the greatest single fill of any week in recorded history for supply.

“I say this to calm those who are worried about natural gas storage,” he said. “Because, in fact, we will fill the storage. It’s not a question of ‘if this or if that happens’ for two reasons.” The first reason is that it’s a “mechanical process,” Horvath said. “You know how much time you have to fill the field until November 1. You can divide that by the number of days and you fill in accordingly.”

Secondly, the NGSA president pointed out that two-thirds of the storage facilities are managed and controlled by LDCs “who are regulated by their public utility commissions, and the states have rules or laws about filling that storage. That storage will get filled.” He said that most of the rest of the third of storage facilities is managed by pipelines “who are also regulated and will do what they have to do to make sure that storage is filled.”

Horvath said that the overall gas supply situation means upward price pressure points, “exactly what Mr. Greenspan said yesterday. The pressure is up on natural gas prices, and he said he didn’t see any relief for the near future and nor do we.”

Horvath also detailed what natural gas producers are doing to address the tight supply environment. Since April 2002, producers have added around 300 rigs, “so we are doing everything we can to get the gas out of the ground.”

While it’s becoming increasingly difficult to get gas out of the ground, producers are “also facing a decline rate situation that exacerbates that,” Horvath said. “We have to get the equivalent of a new Gulf of Mexico each year just to maintain the same amount of production,” regardless of any demand increase.

The NGSA president emphasized that “we need all the supply sources we can get,” mentioning liquefied natural gas (LNG) and natural gas that is under restricted lands, among other things. In his appearance on Capitol Hill this week, Greenspan said that the U.S. will have to become a bigger player in the global gas market by importing more LNG, if the country intends to maintain its current standard of living.

Horvath was asked to what extent he thinks producers will be competing with LNG projects. “These two associations represent the very people bringing in LNG. It’s not a different group, for the most part,” the NGSA president responded. “LNG doesn’t compete, LNG is part of the answer.”

“I think the reality is, given the evolution of the market, there’s a limit to how fast LNG can come on stream,” Dielwart added. “There’s a lot of LNG available in the world. We’ve seen a lot of LNG developments coming out of the Caribbean that are fairly close, obviously, to the North American market and we view those as a supplemental supply source.”

Dielwart said that “nobody in the producing sector wants to see prices so high that it’s not sustainable and so LNG, we see as a complementary source. I think if you’d asked the question a few years ago, there might have been more of a view that maybe it would be more of a competitor. Today, I would say, that we view it as just a necessary incremental supply source.”

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