Can Supply Grow Fast Enough to Meet Increased Demand?

---------------------- Forwarded by Vince J Kaminski/HOU/ECT on 04/28/2000
02:38 PM ---------------------------

Robert Brooks <rebrooks@earthlink.net< on 04/28/2000 12:11:11 PM
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Subject: Can Supply Grow Fast Enough to Meet Increased Demand?

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Natural Gas Supply Chasing Demand

Natural gas suppliers face a tough challenge in meeting strong growth in
demand in the near future, experts told an industry conference in Houston
yesterday. The MMS and the National Petroleum Council have projected that
demand for natural gas could rise to 30 Tcf a year by 2010 from current
levels of 22 Tcf. Finding and delivering enough natural gas to meet such an
increase, even if demand takes another ten years to reach such levels, will
be not be easy, the conference was told. The Gulf of Mexico currently
provides about a quarter of the nation's natural gas requirements and is
expected to generate the majority of future production growth. The MMS says
that natural gas production from the Gulf of Mexico would likely rise from
about 5 Tcf a year now to a peak of 6.1 Tcf in 2005 and then start to
decline. At best, production would peak at 6.7 Tcf in 2010 then bedin to
decline. Chevron says that to meet demand of 30 Tcf by 2020, average daily
gas production in the Gulf of Mexico would have to rise to 22 Bcf cubic feet
from about 14 Bcf now. The GRI says it expects the Gulf of Mexico and Canada
to be 'key pillars' in meeting US demand for natural gas. The GRI projects
that Gulf of Mexico production can reach 8 Tcf a year by 2015, while Canadian
imports will rise to 4 Tcf a year from 3 Tcf. Over the same period the GRI
forecasts that supply in the lower 48 states can grow by 5.7 Tcf, with the
Rocky Mountains region contributing a third of the increase. Ziff Energy said
planners and forecasters might be taking too pessimistic a view of production
decline rates from mature gas wells in the shallow waters of the Gulf of
Mexico. Those wells usually show a rapid decline in production in the early
years of their life but then they tend to maintain stable output for
relatively long periods. Also, the MMS said new technologies such as
gas-to-liquid conversion, could help to harness stranded gas in remote
locations where pipeline systems cannot be built. Storage will also play an
increasingly important role.

Offshore Drillers Beginning to Recover

The offshore oil and natural gas drilling sector has enjoyed a modest
upturn in fortunes for the first quarter, but their mood remains far from
jubilant as earnings lag well behind the peak levels of 1998. The benefits of
the strong recovery in oil prices over the past year have been slow to
trickle down to drilling contractors because most large producers have not
raised their drilling budgets. Over the last week most US drilling companies
have reported sharp earnings declines for the first quarter of 2000, compared
to a year ago. However, many of them posted better numbers than in the final
quarter of 1999 and even managed to better Wall Street's estimates of
earnings per share by a few cents. Although earnings are still showing scant
upward momentum, their stock prices have performed strongly since last year
in anticipation of a gradual improvement. The Philadelphia Stock Exchange
oilfield services index, rose 66.8% in 1999 and is up another 31% so far this
year. So far, the recovery has been largely confined to the shallow waters of
the Gulf of Mexico, fueled by a scramble to produce more natural gas.
Day-rates for Gulf of Mexico jackups have risen 30% compared with the final
quarter of 1999, with utilization rising to 99% from 87%. Day-rates for
jackups in the North Sea and Asia, however, have fallen with utilization of
down to 77% from 81%.

Bob Brooks
GPCM Natural Gas Market Forecasting System