Using preliminary data from the Energy Information Administration between April and July, energy consultant Matthew Simmons said there is a “solid case” that mild summer weather and nothing else was the “storage savior” for natural gas going into the heating season.
Simmons, president of Simmons & Co. International and a panelist at the North American Natural Gas Summit in Houston on Wednesday, said the “unbelievably mild August weather offered deliverance” going into the winter season.
“Had April through July electric sector gas use been equal to 2002 data, end of July storage would have been 1,819 Bcf compared to 2,773 Bcf in 2002,” Simmons said. “Had the heat continued, we could have entered winter with 2.5 Tcf or 2.6 Tcf in storage.”
More worrisome to Simmons, however, are the production numbers currently coming from exploration and production (E&P) companies. “Public E&P company-reported gas supply is still dropping, and the average decline is not a good proxy for ‘all others,'” he noted. The gas rig count seems to be peaking and the concept that the supply collapse has ended or was bottoming is not supported by any facts.”
Simmons’ company surveyed 26 “key” gas producers that total about 55% of U.S. supply. On average their 3Q2003 production was 4.8% less than a year earlier. Of those numbers, 30% of the sample fell by 15%; 40% were off 5% and 30% were up 5%. And, “all of the ‘gainers,’ like Devon Energy and Pioneer Natural Resources, were engaged in real aggressive projects.”
Simmons also warned that the latest National Petroleum Council (NPC) report on natural gas (see Daily GPI, Oct. 27) showed disturbing trends, compared with the previous report published in 1999. Since then, he noted that the “expected supply gains” had evaporated. “Access has become further restricted, new field discoveries shrank and the shrinking size in reserve additions continued.”
Simmons added that the “drilling boom failed to grow supply, and technology advances were hopes, not plans.” The declines, he said, “which the NPC modeling missed,” continue to accelerate. The latest report is “still very aggressive,” assuming a growing deepwater and Rockies supply will offset declines, among other things. But “what a difference four years makes.”
The “gas storm,” said Simmons, “is still gathering. The remaining industrial demand might be hard to destroy. Even ammonia plant use is not easy to export. Temporary plant shutdowns are fine until supplies tighten. And many industrial gas users need gas to operate, yet its cost is small.”
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