The U.S. seems slow to realize that it must try harder to compete for global liquefied natural gas (LNG) supply. And even with all the Rockies pipeline projects that have been completed in the past few years, more takeaway capacity is needed for regional production to realize its true value. These themes were common in the “Alternative Gas — Supply Sources for the Region” panel discussion Tuesday at the LDC Forum-Rockies and West conference in Los Angeles.
“There is not an energy supply shortage in the world,” said William Hussey, vice president of origination for ConocoPhillips Gas & Power, but there is an issue in the U.S. over timing and willingness to compete for supplies on a global basis. He noted demand for LNG was greater in Europe this year than it was in the U.S. And development of LNG infrastructure is much further along in the Asian nations of China, Japan, Korea and Japan than it is domestically, he said.
Beth Bowman, senior vice president of Shell Trading Gas and Power, followed by asking rhetorically, “Where will LNG go?” It’s something of a trade-off, she said, because while it’s cheaper to ship LNG to Asia, prices for the product tend to be higher in North America.
Regarding LNG supply for the West Coast specifically, Bowman said the Sakhalin and Tangguh developments are already under way in Asia, with the Camisea and Gorgon projects due to come online in 2006. Under the category of “It’s there, when will it go?” she listed Indonesia, Malaysia, Northwest Australia and Alaska. But a potential game changer, Bowman said, is the Middle East, which is a global pivot point for supply in that it can just as easily send LNG toward North America or Asia.
J. Greg Schnacke, executive vice president of the Colorado Oil & Gas Association, pointed out that the Intermountain West is the only U.S. supply basin where production is not in decline. The “good news” is that there is a lot of Rockies gas available for export, he said, but everyone needs to get behind the issue of additional drilling access to federal lands.
Using slides provided by Kinder Morgan, Schnacke argued that there is good reason to expect more increases in Rockies takeaway capacity in the future — large basis differentials exist between the Rockies and North Central/eastern markets, and those high-consumption markets need more supply diversity, especially after the massive hit to Gulf Coast production from hurricanes this year. Without new takeaway capacity, basis will blow out again in the Rockies and production will be constrained, Schnacke said.
California is fortunate to be comfortably situated between two prolific supply basins, Canada and the Rockies, said Gary Weilinger, vice president of DEGT [Duke Energy Gas Transmission] West and president of its BC Pipeline & Field Services Division. And “despite posturing you may hear” from various entities, Canada wants to continue being the biggest foreign supplier to the U.S., he added. Although Western Canadian Sedimentary Basin production is declining somewhat, Weilinger said, coalbed methane is its most promising future supply source. British Columbia gas is well positioned to buck the WCSB trend with annual growth of 3.6%, he said, and the province has more than 30 Tcf of remaining conventional reserves.
In an opening keynote address, Chris Foster, executive director of UBS AG, pointed out that the Rockies-NYC (Transco Zone 6) basis spread often has been as much as $10 in recent months, but when transport between the two could be as low as a dollar, obviously such a spread can’t last. Foster also said he expects more coal-fired power generation to be coming to California (although not necessarily in-state), and that will back out gas demand.
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