The IPAA’s Supply and Demand Committee said a rig and drillingworkforce shortage is seriously hindering a supply response tosoaring gas prices, and the problem is likely to continue in 2001.

In a new supply and demand forecast, the committee notedproducers are aggressively exploring for and producing gas to meetburgeoning demand; the gas rig count is at a record high. Howeverdomestic gas production probably will grow by only 1.5% next yearto 19.01 Tcf, with most of that growth occurring in the Gulf ofMexico. Meanwhile, consumption will jump 3.4% to 22/77 Tcf/year.

“The incentives to produce certainly are there,” the IPAAcommittee said in a statement. “But in order to produce more gasquickly, producers need to find yet more drilling rigs andcompetent personnel to operate those rigs. Many highly qualifiedpeople left the industry during the oil (and natural gas) pricecrisis of 1998-1999 and not all have returned. Many rigs were idledon service company premises and cannibalized for spare parts.

“The depth of the 1998-99 depression means a long haul back.Many independents say they got back on their feet this summer, afull 18 months after an OPEC pact to curtail petroleum productionbegan to be felt. Recovery in the oil and natural gas productionindustry does not happen overnight.”

As a result, the committee foresees only a “gradual recovery” inproduction. The committee also believes storage inventories will bevery low next year, so low in fact that the industry will have”another uphill battle to replace enough gas in storage to meet theestablished target level of 3 Tcf by the start of the nextwithdrawal season around November 2001.”

Storage is increasingly being used to capture short-term pricingdifferentials in addition to its traditional role of serving winterdemand. Consequently, the committee believes the gas market willremain tight for the rest of the winter and into the summer storageinjection season.

Real economic activity, as measured by inflation-adjusted GrossDomestic Product (GDP), is projected to increase at an annual rateof 3.2% in 2001. Economic growth, electricity demand and normalweather are expected to drive U.S. total energy consumption in 2001to an anticipated 95.77 quadrillion Btus (quads), an increase of1.8%. Gas consumption by electric utilities is expected to increase4.7% next year to 2.92 Tcf.

To compensate for the absence of sufficient domestic supplygrowth, the committee forecasts imports will rise 8.6% next year to4.07 Tcf. However increased Western Hemisphere trade opportunitiesalso will boost gas exports to 252 Bcf in 2001, up 7.2% from 2000,IPAA predicted

Copies of the IPAA Supply and Demand Committee’s forecast areavailable on request. Call Brigid Gartland at (800) 433-2851.

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