Those who are touting natural gas as the nationwide cure-all forevery energy and environmental problem that ails us had better takea long, hard look at the status at the Gulf of Mexico, the largestU.S. producing basin.

“Today there seems to be a consensus among those who don’tactually have to search for and produce natural gas that therecould be an unlimited supply of that commodity available at about$2.00 per Mcf,” according to Luke R. Corbett, CEO of producerKerr-Mcgee. But those who see more and more gas-fired generation asa panacea for dirty coal and uneconomic nuclear plants need toreconsider the situation. Coal currently produces four times asmuch electricity as gas, and nuclear plants produce 50% more powerthan gas, he said. “The largest nuclear plants produce, on a givenday, approximately the equivalent of what a one-half Bcf/d naturalgas-fired plant could produce. That’s about 500 MMcf/d, roughlywhat the industry added incrementally through all of 1997.

“The fact is that natural gas in North America has the potentialto reduce pollution, to safely replace nuclear plants, to heat ourhomes, to reduce carbon dioxide emissions, but there just isn’tenough of it at present to meet all of our needs, not at $2.00 anMcf, not at $3.00 an Mcf. Gas is a very important part of our fuelequation, but it cannot be the only component in the needs of NorthAmerica.”

While new technology and discoveries in the deep-water Gulf areexpected to be enough to offset production declines on the Shelf,they may not provide the incremental supplies needed if demandincreases substantially. “What I am concerned about and amseriously questioning is the level of expectations currentlyresting with the natural gas industry in North America versus ourability to produce. As long as you can find the next [gas field]quickly enough in the case of the smaller accumulations,deliverability looks robust and can be kept essentially flat.” Inthe Gulf, 3D seismic and horizontal drilling technologies coupledwith a mature pipe infrastructure, at least in the shallowerwaters, have all helped maintain deliverability. And price spikeshave sustained efforts to find and tie in smaller oil and gassupplies even in the face of rising costs, Corbett pointed outwhile speaking at Cambridge Energy Research Associates’ (CERA) 17thannual Executive Conference in Houston last week.

“I believe that recent prices, however, are low enough to causesome deferral of drilling plans for smaller accumulations with somediminished deliverability being the inevitable result.” Whiledeep-water projects will match Shelf declines, the physicalresources needed to develop the deep-water are becomingincreasingly expensive, and deep-water projects cannot be developedas rapidly as those on the Shelf.

Corbett noted domestic gas production saw only a modest rise ofabout half a Bcf from 1996 to 1997. “U.S. gas production in 1997was essentially flat compared to 1996, and it’s been nearly flatfor a full year. Period. The industry’s been running at top speednow for about 5 « years.

Thomas R. Robinson, CERA senior director for natural gas,expressed a similar but more optimistic view. CERA acknowledges1997’s modest production growth and predicts slow growth this yearand next as well. “Much of that growth is coming directly from thedeep-water,” Robinson said. “We look at between 1997 and the year2002 roughly 4.2 Bcf/d in incremental deliverability out of thedeep-water.” The most important foil to that rising production is,of course, Shelf declines. “What it means is that while 4 Bcf/d maybe coming from the deep-water, as much as half or more of that maynot actually make it to the beach on a net basis because ofdeclines on the Shelf. So it’s this theme of running harder to stayin place. The pace of growth of the U.S. market is going to besomewhat slower in our expectations over the next three to fouryears.”

More bullish on Shelf and deep-water production is Michael J.Utsler, deep-water manager of planning and technology for Amoco’soffshore business unit, who spoke recently at an Energy Dailyconference in Houston. “There are tremendous gas resources stillremaining, Shelf and deep-water. Those are being pursued anddeveloped so effectively you are not going to see a decline insupply in gas on the Shelf and/or deep-water Gulf of Mexico as awhole. You’re actually going to see an increase in deliverabilityof gas.”

Looking out past 2001 and 2002, after the deep-water productionboom has arrived, the supply picture becomes murky, Robinson said.”I think it’s important not to be alarmist, though.” While therewon’t be shortages or reliability problems, “prices will continueto be volatile and potentially be at a somewhat higher plane thanwe’ve seen in the past several years.” He pointed out the currentgas market calls a drop in prices to $2.20/Mcf a “collapse.” Butfive years ago, a strong market was said to “push prices up to$2.20.”

Looking north to Canada, yes, pipeline capacity into the U.S.will grow 2.5 to 3 Bcf/d over the next three to four years,Robinson said. “What’s uncertain is that there’s supply to fillthat capacity.” (See Sable Island start-up below ) Robinsonpredicted the advent of another supply source coming in the form ofa liquefied natural gas (LNG) renaissance, something that’s alreadyhappening in New England. (See story p.3)

Joe Fisher, Houston

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