The CEO of one of the most active drillers in North America —EOG Resources Inc. — said last week that he expects the next “bigslug of supply” will come from Alaska and the Beaufort Sea, but notuntil a pipeline is in place there, and not until producers canfill the pipelines with gas.
Mark G. Papa, speaking in Houston to the Independent PetroleumAssociation of America last week, said that it’s a strain forproducers to sustain their peak deliverability, especially sinceU.S. demands for natural gas are steadily increasing. The rise indemand is the only reason that gas prices have been so high thisyear, he said.
Still, despite the high demand and steady increase in price,Papa said he actually predicts that U.S. production, which peakedin 1994, to be down 0.5% this year from its 1999 levels. And Canadaproduction also is slower than expected. To keep peakdeliverability from falling, Papa said that new production has tobe brought on every year, a situation made more difficult becauseas supply increases, the present production has to not just remainsteady, but grow as well.
EOG estimates that operators have to keep 650 rigs busy drillingfor gas to offset production declines, and that number keeps theproduction steady. The most recent Baker Hughes rig reports puts770 rigs actively drilling for gas in the United States. How longthose rigs can keep production up is the big question. Lowinventories definitely will stress out the heating season in a fewmonths, said Papa. And the big question is whether the comingheating season will be “extremely” or only “moderately” stressed.
And while the reserves are there, and new pipeline capacity inwestern Canada is there, the supplies aren’t there yet, said Papa.With decline rates increasing, producers haven’t been able to fillthe pipes. Even in Alberta, which is Canada’s largest producingprovince, decline rates have grown by 10% in about 10 years. Theystood at 9% in 1988 and 10 years later they were at 19%.
That’s today, but for tomorrow, “price elasticity works on thedownside just as well, and there’s going to be another cycle,” hesaid. That cycle most likely will come with the expected butoverdue economic downturn, which will cut industrial demand for gasand free up supplies.
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