While U.S. natural gas resources appear virtually unlimited,that doesn’t necessarily mean the industry can ramp up productionto meet the oft-heralded 30 Tcf a year market projected to developover the next 15 to 20 years, according to a Chevron U.S.A.exploration manager.

The majors no longer operate in the Lower 48 onshore, Andrew L.Hardiman told an OCS Policy Committee meeting Thursday, and there’sa reason for that. Chevron was the last major to leave the lower 48onshore because the returns did not justify the expense of deepdrilling, plus the limited access and the time involved inpermitting. These factors “will have an impact on how fast theresources will be available,” Hardiman said.

While the majors do still operate in the offshore, he questionedwhether production could be ramped up to meet the 30 Tcf timetable.Better technology did have an impact over the last 12 years, anddrilling and the number of wells have increased production from 45Bcf/d in 1987 to between 51 and 52 Bcf/d from 1995 on. Despite allthat “over the last four to five years production shows an awfullyflat curve.”

Ideally, gains in the deep-water production would add to asteady, shallow-water production rate, but that has not been thecase. A large percentage of production is from wells drilled in thelast two to three years, which argues for a high rate of productiondecline – a 40% decline if nothing is done, Hardiman said. Withworkovers or completions in new zones the decline rate can be cutto 25-30%. Adding in new wells can cut the decline rate to 5-6%.”The best opportunity we’ve got is to capitalize performance on theGulf of Mexico Shelf,” the Chevron representative suggested.

He pointed out, however, that in the last five years the cost ofdrilling new wells has nearly doubled from $2.60 per barrel of oilequivalent to $5.10 . “The quality of the investment has been cutin half over the last four or five years. The question is how longis the industry going to continue to invest to get that declinerate down to 5-6%.”

Hardiman also questioned optimistic projections for the deepwater drilling, pointing out that province is driven by oilproduction. While the shelf is gas with associated oil, the reverseis true in deep water where about 70% of the production is oil. Hequestioned projections that put gas production at between 4 and 5Mcf per barrel of oil, saying some of the larger deep waterdiscoveries are more like 1 Mcf per barrel. And “you’ve got to getthe oil out first.”

The Chevron exploration manager said he believed 1% productiongrowth per year “is very doable.” He was skeptical there could bethe 2-3% annual growth needed to support a 30 Tcf market by 2015 asprojected by a number of analysts because of “the quality of theinvestments, the size of the pools, and the deliverability – howfast we can get it to market.”

The producer’s testimony came during a two day conference inArlington, VA, of the OCS Policy Committee, which is composed ofrepresentatives of the Minerals Management Service and stateofficials who oversee resource management, along with industryrepresentatives.

In an earlier presentation, the director of the Potential GasAgency, which assesses reserves, described a reserve base in theU.S. that appears virtually limitless. He was careful to note,however, that his was a geological assessment which did not includecosts or prices or attempt to measure potential deliverability.

Ellen Beswick

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