North American natural gas demand is projected to increase from 66 Bcf/d in 2006 to 81 Bcf/d in 2015, as an abundance of lower-cost liquefied natural gas (LNG) floods the market driving down prices, according to a recent report by Ziff Energy. A continued expansion of U.S. LNG imports from all parts of the globe could reach the point where “you had better have world peace or you will be bombing your own natural gas suppliers.”
“The LNG supply side is going to grow and boom,” said Bill Gwozd, Ziff Energy vice president of gas services. Stranded gas from a variety of locations in the Middle East, Australia, North Africa and South America will continue to be commercialized at a faster rate than demand growth, as countries invest to monetize isolated reserves. There will be plenty to go around worldwide. The estimated 26 Bcf/d of worldwide LNG supply is expected to double to more than 50 Bcf/d by 2015.
“Incremental LNG will depress gas prices in North America. It’s a competitive threat to the North American producer because it has a lower cost structure than domestic production. It can take a lower price.” And because it is stranded gas “getting something is better than getting nothing.” Ziff sees LNG coming into North America at a rate of 13 Bcf/d seven years from now, up from about 2 Bcf/d currently.
In a recent paper on LNG, Ziff predicts two LNG terminals going into operation on the Canadian East Coast by 2015, one to feed populous Quebec and the second to supply local industrial/power demand, with the balance shipped into New York. “While there are other [Canadian East Coast] proposals, they won’t happen by 2015.”
More eastern North American facilities will go on-line over the next several years, adding up to 30% of the LNG arriving on North American shores by 2010 coming in between Boston and Elba, Island, GA. It will be the same percentage in 2015, but a larger quantity. New offshore terminals plus existing facility expansions will contribute.
For instance, the Ziff report points to the Dominion Cove Point, MD, LNG plant sendout capacity increase slated to go from 1 Bcf/d to 1.8 Bcf/d in 2008. That capacity will be delivered through an 85-mile pipeline into the heart of the Mid-Atlantic states. The supply is expected to be split, with about 500 MMcf/d going to a Chalk Point, MD, power plant; 200 MMcf/d going to Virginia Power; 700 MMcf/d going to Transcontinental Gas PipeLine at Pleasant Valley in Fairfax County, VA; 700 MMcf/d to Columbia in Loudoun County, VA; and 700 MMcf/d going to Dominion, also in Loudoun County. Suppliers to Cove Point will be BP, Shell and Statoil.
By 2010 and 2015 about 50% of all LNG in North America will come into the Gulf Coast, filling pipeline capacity freed up by declining Gulf of Mexico production.
Canadian Gas Stays in Canada
“Gas from Canada to the U.S. Northeast dries up by 2013. That’s five years away,” Gwozd said, explaining the demand for LNG. Big jumps in the use of Canadian gas for oil sands development — double or triple current volumes — and to feed increased population and industry at home, particularly in provinces that are abandoning coal power, will cut into Canadian exports to the United States.
Additionally, less drilling is expected in Alberta since the provincial government increased royalties. “Decline rates are being accelerated by Alberta’s ‘closed for business’ attitude and the declining American dollar against the Canadian dollar. Producers are moving rigs and drilling activity to other, more friendly areas.”
And while production is increasing in the U.S. Rockies and areas like the Barnett Shale, that doesn’t make up for losses in the Gulf of Mexico, where production has been playing out, and in the Western Canadian basin, which currently is the biggest basin in North America. An expected 3 Bcf/d increase in Rockies gas, from about 13 Bcf/d today to 16 Bcf/d in 2015, and added flows from developing shale basins won’t take up the slack to meet the additional 15 Bcf/d of North American demand predicted by that time. Ziff, which delivers a different report to clients each month, issued a paper in August on Rockies area gas supply.
The increased gas demand will be driven by power generation. During the next seven years natural gas for power generation will see a big jump in market share, as well as a nearly 25% hike in gas volumes, according to a recent Ziff Energy North American demand report. In 2006 27% of gas sold in the United States fueled power generation.
The report sees electric load capturing 35% in 2015, going from nearly 18 Bcf/d in 2006 to more than 28 Bcf/d in 2015. Part of that increase is the push away from more polluting power sources, and part of it is the fact that power customers are using more energy every year for an increasing number of electronic gadgets.
More Gas Power
The greatest rate of growth in gas for power demand will be in the Southeast, including Florida and surrounding states, Ziff predicts. Looking at overall gas demand, the U.S. Southwest, spurred also by increased gas for power, takes the largest share, about a quarter of total demand. Canada, with a 13% share of gas demand in North America, is expected to see a growth rate of 3% a year, similar to the growth rate of the U.S. Southeast, Interior West and Northeast.
Industrial gas use has declined as natural gas prices have risen with about 23 Bcf/d consumed in 2000 dropping to about 21 Bcf/d in 2006. Ziff sees industrial volume consumption leveling out and staying at about 20 Bcf/d through 2015, although its slice of the gas pie drops from 31% of overall demand of 66 Bcf/d in 2006 to 25% of 81 Bcf/d in 2015 as industries that can build new plants overseas do so.
Residential and commercial demand will see slightly increased volumes as customer growth is moderated by increased efficiency. Even though Ziff sees a 2% a year increase in the number of residential customers, that will be moderated by a 1.5% gain in efficiency for an overall advance of about 0.5% a year in residential gas volumes from about 13 Bcf/d in 2006 to 15 Bcf/d in 2015, at the same time the residential percentage of the demand pie goes from 20% to 19%.
Commercial gas demand also will pick up about 2 Bcf/d from 2006 to 2015, from about 9 Bcf/d to 11 Bcf/d, from growth in the number of customers, while keeping its 14% share of the market. The increase is despite a 1.5% annual gain in efficiency.
The increasing LNG import trend is expected to continue through 2025, at which point coal and nuclear power will have to start to rebound and more U.S. areas will have to develop aggressive demand side management programs. By 2015 there will have to be a shift to a nuclear and coal strategy because of the long lead time to develop such plants. “By 2030 if you have no new nukes sited, what will the world look like? You’ll have massive LNG imports; you had better have world peace because if not you’d be bombing your own natural gas supply,” Gwozd said.
Need for Long-Term Strategy
To prepare for the world beyond the natural gas and LNG panacea, the U.S. needs a long-term energy strategy, he suggested, looking at the energy world 20 years ahead. “We think, at Ziff Energy, that the U.S. energy policy will foray into siting nuclear power plants on top of U.S. Army personnel bases. The U.S. Army would own the land and therefore they could site massive nuclear power plants in large populated areas without any reprimand from the ordinary person because it would be taking on the U.S. government.”
Already, in the United Kingdom, planners have developed scenarios to expand their power supply in every way and from every source possible, except nuclear energy. That means demand side management, more wind power from “big windmills offshore, more natural gas from Russia, new LNG delivery ports, enhancement of existing gas supply, extraction of more coal from the mines, and maintaining any other power sources, but they don’t balance.” Now, U.K. energy planners are asking what more can be done. While they have not yet put forth a nuclear strategy, Ziff expects the next scenario will focus on nuclear power.
One solution to increased energy use would be to develop an aggressive “knit a warm sweater” program. Gwozd explained that’s his code phrase for demand side management to keep warm in a high-demand energy world. Gwozd, who is based in Alberta, sees problems ahead from the lack of a U.S. energy policy. Right now anyone looking to augment power supplies “only has one choice; turn on another natural gas plant. You can’t turn on a nuke next year,” and every year of delay in planning new nuclear plants means one more year of adding gas plants.
The lack of a coherent policy threatens the loss of jobs and employment, “the loss of our children’s future and the possibility of freezing in the dark,” the Ziff analyst said, criticizing U.S. energy planners for failing to come up with a long-term strategy.
At least California and Portland, OR, are doing something, rather than nothing, with aggressive demand side management programs. Gwozd cited Portland, as “the most aggressive demand side management city in North America,” with a goal of reducing natural gas demand by 50% by 2015. “Portland could provide a benchmark for all the others with the rest of North America watching.” California also is providing demand side management incentives.
“U.S. energy policy is being set by housewives in Portland, movie stars in California and 50 protesting fishermen on the coast.” He blamed the NIMTO (Not in My Term of Office) philosophy, which elected politicians and energy administrators use to evaluate strategic options. They are not as concerned about the consequences of their decisions because by the time they occur it will be someone else’s problem to deal with.
Ziff Energy, headquartered in Houston, has offices worldwide, offering consulting services to companies and governments. “We work privately with LNG suppliers around the world” making detailed supply and demand assessments. Ziff also is a member of the LNG Solutions Group, a consortium of the largest independent think tanks with more than 6,000 professionals. The consulting company is strong on natural gas, including detailed sector demand, competing fuels, and E&P, storage and pipeline supply and price models. “We have THE Forecast for LNG requirements in North America,” Gwozd said.
Ziff Energy offers its clients “independent fundamental views of the future. We help them see looming problems crystal clear and provide action sets,” Gwozd said. The consulting firm does its research and “we provide one opinion, not scenarios and not different opinions for different clients. When we get a new client, we tell them to buy a box of pencils to take notes. If we had the U.S. government as a client we probably would suggest several boxes.”
Until very recently Ziff was an independent advisor to the Alberta government, very independent. “They fired us after I said [in a presentation to 700 people] the Alberta government royalty review was upside down and backwards and the paper could be cut three inches wide, rolled and used by students on camping trips.”
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