The United States “has probably peaked in gas supply,” Matthew R. Simmons of Houston-based Simmons & Co. International warned industry and government representatives Monday.

“Accidentally, the U.S. bet its future on plentiful amounts of natural gas. We picked the right ‘mix.’ We just got supply and demand wrong. Decline curves on the existing supply were ignored,” he said during a workshop on natural gas supply and demand sponsored by The National Academies in Washington, DC. In addition, “technology that was creating exponential growth [in production] is declining.”

The low supply situation is most noticeably reflected in U.S. gas storage, which on April 11 stood at 623 Bcf, or 59% lower than the year-ago level. Gas storage in the Producing and Eastern regions is especially strained, with levels 64% below those in 2002. “Canada’s storage deficit is far worse than ours,” according to Simmons.

Noting there were 193 days left to refill storage for the 2003-2004 heating season, he cautioned “there might not be enough [gas] to go around.” Simmons believes the “stakes [will be] high for gas distributors and industrial users to ‘get supply right'” in time for next winter.

Several factors pose a threat to storage refill. “Muggy weather is a vicious enemy” because it would push gas demand for air conditioning up, and “hurricanes are Murphy’s Law Squared” because they’d cause production to be shut in, he said. Moreover, he estimated an additional 60,000 MW of gas-fired power generation capacity has come on line since last year.

Simmons questioned whether it was “realistic” to even believe gas storage will reach 2.5 Tcf by next Nov. 1.

Overall, year-to-year domestic gas supply is now down between 6% to 10%, he said, adding that gas development drilling has rebounded to 80% of peak levels, but gas exploration drilling still is at a 30-year low. “There is no evidence that 2003 gas supplies will soon ‘stabilize,” he said. “How far supply will fall is the big question.”

A recent update of a 2002 survey of the production output of gas wells in 53 counties in Texas, Simmons said, revealed “how serious [the] decline curves have become.” He noted gas wells that were completed in 2001 accounted for 15% of the region’s total production (7.8 Bcf/d) a year ago, but their contribution now has dropped to 5%. Similarly, the production level of wells that were completed in 2002 and 2000 have declined sharply.

In the 2002 survey and this year’s update, Simmons said it found that 7% of all the gas wells drilled in the Texas region — which were giant gas wells — contributed to nearly half of the total production output. “Had [this] tiny percent of giant gas wells not been drilled, supply would have crashed,” he said. He stressed, however, that the “remaining 93% [of wells] were equally important.”

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