A panel of industry representatives told federal energy regulators at a Denver technical conference Wednesday that natural gas supplies from throughout North America as well as new imports of liquefied natural gas (LNG) and Alaskan Arctic supplies will be needed in the long term future to adequately meet growing demand. There are also plenty of supplies on federal lands if drilling in those geographic areas are ever opened, they said.

Speakers from western Canada, Mexico and western U.S. energy organizations basically agreed that gas supplies from traditional sources will not satisfy growing U.S.demand. So, unless demand is cut and alternatives to the growing natural gas-fired power plants are brought forward, LNG landed in Mexico and Arctic supplies piped through Canada will be needed to keep up with demand in the West.

Two of the three currently sitting Federal Energy Regulatory Commission members, Chairman Patrick Wood and Commissioner Nora Brownell, mostly listened to the presentations and took notes at the late afternoon presentations that were developed as part of the summer meetings of the National Association of Regulatory Utility Commissioners. State commissioners from six western states attended and spoke at the session.

“We’re never going to solve the natural gas supply situation with the drill bit,” said Darcel Hulse, president of Sempra’s Global Enterprises unit that includes the development of LNG receiving terminals on the Pacific Coast of North Baja California, Mexico and on the Gulf Coast of Louisiana.

“The first thing we need to do [as a region and nation] is to recognize that we actually have a gas supply problem,” said Hulse. “The problem is long-term and will require long-term solutions. Since the deregulation of gas in the mid-1980s, U.S. demand has outpaced the production and the gap is widening.” He added that the days are gone when Canadian supplies can fill the gap. It is Sempra’s contention that natural gas production will follow the same course as oil, 60% of which today is imported.

“We feel there have been overly optimistic production projections, and very speculative demand projections. The fact is that we cannot consume more than we can supply, and prices will rise until there is sufficient reduction in consumption to bring supply and demand into perfect harmony. We are already experiencing the economic impact of a supply shortage.”

The assumption is that the United States will begin importing more and more gas through LNG to tap what Hulse said are 6,000 Tcf of proven gas reserves worldwide, which are being consumed at a rate of about 85 Tcf annually, or a 70-year supply. North America represents almost one-third of the world’s gas demand.

In anticipation of this upswing in imports, Hulse said the United States has to update it standards for LNG because there are “better rules [than the U.S. has] in place today, and the LNG industry has had an impeccable record the past 35 years.” As an example, he said the nation needs to make sure it is not hurting its chances for multiple sources of LNG by what he called “demanding restrictive pipeline-quality specifications” for the LNG.

A current California Air Resources Board standard, he said, was put in place for the relatively small volumes of compressed natural gas used in fleet vehicles in Southern California, but the standard as presently in place would prevent the import of LNG without modifying the fuel for delivery into the state.

Canadian representative, Bill Bingham, with the National Energy Board, conceded that “the days of easy production increase (in Canada) may well be behind us, however, with continued development of its large resource base and various new potential sources, Canada will remain a significant producer and primary supplier of natural gas to the United States for some time.”

To the south, the economic director for the federal Mexican government equivalent of FERC, Comision Reguladora de Energia (CRE), indicated that there should be additional Mexican LNG permits given by CRE in the near future, and he thinks that as many as all four of the proposed North Baja LNG receiving terminal proposals will be approved, but no more than two — and perhaps only one — will be built. On Mexico’s Gulf of Mexico coast, the Altamira LNG project also is likely to be okayed by CRE as a source of fuel for a number of existing and new power plants in that part of the country.

Noting there is a “stark contrast” in Mexico to the other two NAFTA nations because of Mexico’s legal monopolies in both the power sector and hydrocarbon industries, Francisco de la Isla, CRE’s economic director, said all of the LNG filings to the Mexican federal regulators have been “analyzed, one permit (of four) has been granted and responses for the other three will be made very shortly.

“We don’t know when any of these projects will be put in place, but we expect one, or at least two, to start operations as scheduled (in 2006-07), which means an increase in supply for the northwestern part of Mexico, but because there is no great economic demand in this area, most of this gas will flow into the U.S. On the other side, the gulf coast, there is a project (Altamira) that is primarily for power generation purposes that is supposed to start in 2006.”

Ultimately, De la Isla said that to turn Mexico’s energy “potential into a reality” will still depend on political processes and local government siting and environmental decisions that go well beyond the federal regulators, CRE.

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