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Meeting the Nation’s Natural Gas Needs:

Industry and Government Cooperation Needed*

By

Naresh Kumar1

Search and Discovery Article #10035 (2003)

 

*Online adaptation of presentation at AAPG Southwest Section Meeting, Fort Worth, TX, March, 2003 (www.southwestsection.org)

1Growth Oil and Gas, Richardson, Texas ([email protected])

Abstract

Natural gas supply and demand, unlike that for crude oil, is controlled by domestic and sometimes, regional market forces. Currently, natural gas provides 25% of our total energy needs. United States produces one-fourth and consumes one-third of the world’s daily supply. At current consumption levels, United States has a 9-year supply of proved reserves and almost a 60-year supply of potential resource. However, the supply and demand balance maintained by the market is such that a drop of less than three-week supply in the “system” can make the difference between markets being “flush” to markets being “short”. Local and regional imbalances have led to huge swings in prices during the last couple of years.

Demand for “clean fuels” throughout the world is only going to increase the demand for natural gas. Increase in US demand because of economic expansion and environmental considerations would require a national effort to make capital, rigs, personnel and technology available to meet the needs. Although we are importing approximately 15% of our natural gas, shortages in domestic production cannot be easily met through increasing imports. Nevertheless, the domestic environment has not been the most favorable for increasing supply. Almost a 10-year supply in places such as Rocky Mountain Basins, Alaska and the Outer Continental Shelf is either “off limits” or has severe restrictions against development. In order to meet the nation’s needs, a cooperative environment among industry, governmental agencies and the environmental community is required.

 

 

uAbstract

uFigure captions

uIntroduction

uResource, reserve, supply, demand

uProjections

uRecommendations

uConclusion

uReferences

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

uAbstract

uFigure captions

uIntroduction

uResource, reserve, supply, demand

uProjections

uRecommendations

uConclusion

uReferences

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

uAbstract

uFigure captions

uIntroduction

uResource, reserve, supply, demand

uProjections

uRecommendations

uConclusion

uReferences

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

uAbstract

uFigure captions

uIntroduction

uResource, reserve, supply, demand

uProjections

uRecommendations

uConclusion

uReferences

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

uAbstract

uFigure captions

uIntroduction

uResource, reserve, supply, demand

uProjections

uRecommendations

uConclusion

uReferences

 

 

 

 

 

 

 

 

Figure Captions

Figure 1. Amounts in TCF (trillions of cubic feet) of natural gas resources, reserves, and supply as reported by National Petroleum Council (1999). Compared to the supply and reserves, the nation is amply endowed in natural gas resources. Further explanation in text.

 

Figure 2. Capacity utilization of natural gas production plotted against twelve-month price volatility in recent years.  Once the utilization reaches 85% or more, price swings have reached $1.00 to $3.00 per thousand cubic feet (mcf) (Energy Information Administration, 2001).

 

Figure 3. Mean technically recoverable volumes of oil and gas in United States subject to complete or partial restrictions. A significant amount of nation’s natural gas endowment is not available for the nation’s needs. Various sources of data identified on the map. Further explanation in text.

Introduction

With only 5% of the population and 25% of the total consumption, United States is the world’s largest energy consumer. Currently, we depend on hydrocarbons for 85% of our energy needs; and natural gas accounts for 25% of the total  (AAPG, 2002). Our reliance on hydrocarbons is unlikely to change in the short term and the proportion of natural gas in nation’s energy mix is only expected to increase for the following reasons:

  • Environmental regulations favor utilizing natural gas wherever possible.

  • Higher natural gas prices allow economic exploration, production, and marketing of natural gas.

  • Oil production in US continues to drop and proportion of imports continues to increase.

  • Non-hydrocarbon sources of energy constitute a very small proportion of the mix and large-scale economic sources will not be available for the foreseeable future.

  • Domestic supply of natural gas is available; imports are relatively small.

  • Domestic gas resources are sufficient to meet the annual demand for a minimum of several decades.

The objective of this paper is to review whether the nation will be able to meet the increased demand for natural gas as it becomes the fuel of choice and as the economy expands. The nation will have to develop appropriate economic, political, and technologic environment requiring cooperation among various “stakeholders”: general public, state and federal lawmakers, oil and gas industry, capital markets, academia and the environmental community.

Resource, Reserve, Supply, and Demand

Figure 1 shows the Resources, Reserves, and Supply figures for the United States for natural gas. Resources are estimated amounts of hydrocarbons remaining to be discovered based on geological knowledge, exploration and development technology, and changes in the market place. Reserves, on the other hand, are estimated amounts of hydrocarbons that can eventually be recovered from existing reservoirs/fields under current technology/pricing scenarios. Exploration has to take place before resources can be converted into reserves. Supply is the amount of hydrocarbons that is available from the existing or drilling wells in a given year. Supply, by definition, draws on existing reserves (National Petroleum Council, 1999). At the supply rate of 19tcf (trillion cubic feet) per year, the nation has more than 10 (195/19) years supply of gas from its proven reserves. Even if 50% of the gas resource could be converted to proven reserves, the nation has almost 47 years supply of gas at current rates (1780/2x19). Thus, it is obvious that the nation has ample potential supply of gas for the short- as well as the long-term. According to Energy Information Administration (EIA, 2002), the total demand for natural gas in the United States was 22tcf in 1999, the shortfall of 3tcf imported primarily from Canada.

Unlike oil, which is an international commodity- its price being set by the worldwide supply and demand outlook; gas is a domestic or even regional commodity. Because of the high utilization of the total capacity (demand exceeding supply), any excess demand on the supply (weather, natural disaster) can cause 50 to 100% swings in natural gas prices (Figure 2, EIA, 2002). During the last three years we have seen significant swings in the US natural gas prices.

According to CERA (2001), even a 1tcf drop (about three-week supply) in “working gas” can cause the domestic markets to go from being “flush” to being “short”.

Projections for the Future

According to EIA (2002), the nation would need 35.1tcf of natural gas per year in year 2020 and the domestic production may grow to 30tcf by then. The remainder, 5.1tcf, would need to be imported, again primarily from Canada. Thus, in order to meet the EIA projections, the domestic production would need to grow by almost 60% and the imports from Canada would need to jump by 70%. According to Attanasi (2002), even if all the Lower 48 resources could be converted to reserves, there is not enough gas to meet the projections for domestic production. Also, it is not likely that Canada has enough resources to provide US with the additional supply, and meet its own growing needs. Thus, at a minimum, the US would have to produce all it can from Lr.-48 and produce a significant amount from Alaska.

The primary requirement for maintaining and increasing the domestic production is access, suitable regulatory and tax climate, and availability of capital, equipment, and human resources. Unfortunately, the political and economic climate in the country has not been conducive to providing an ideal environment. The total capital requirements to increase the production to 30tcf is estimated to be 1.5 trillion dollars; and it would require the drilling of twice as many exploratory and development wells per year than were drilled yearly in late 1990s (NPC, 1999). In reality, capital available for exploration and development projects has been scarce and the total number of wells drilled has declined. Additionally, instead of encouraging access to prospective lands to maintain and increase gas production, federal regulations have become progressively restrictive (Figure 3). The total natural gas resource, subject to some restrictions in Lower-48 and Alaska is 215.7tcf, an amount that exceeds the total proven reserves of the country and represents almost 12% of the total resource (NPC, 1999).

Recommended Actions

The U. S. must develop a national energy policy that provides dependable, affordable, and uninterruptible energy for the public and commerce, and is based on a sound scientific assessment of the nation’s needs, resources and reserves. This policy needs to be developed in an environment of cooperation among all the “stakeholders” rather than in an atmosphere of confrontation.

Energy policy must be strategic and long-term, not “quick fixes” to short-term “crises”. 

  • A major, long-term, and capital intensive energy industry effort is required to explore for, develop, produce, and build the infrastructure necessary to deliver the energy supplies required to meet projected demand.  Energy policy must facilitate the process of capital formation and energy development, without creating costly and time-consuming regulatory roadblocks.

  • Energy policy must include a role for all energy sources:  natural gas, oil and coal and all other non-hydrocarbon sources including the “renewables”.

  • Industry access to public lands, which might contain hydrocarbon resources, should be a priority to encourage exploration for and production of domestic natural energy sources. 

  • The public must be assured that energy resource development can be accomplished in an environmentally responsible manner.  The technology is available to do this.

Conclusion

The importance of natural gas in the nation’s energy mix will continue to increase. Besides being a “clean-burning” fuel, our nation is also endowed with ample resources of natural gas. However, in order to utilize natural gas to its full potential in our economy, a national effort is required to make capital, rigs, personnel and technology available to meet the future requirements. Many gas-rich basins in the country are either completely or partially “off limits” to the industry. In order to meet the nation’s needs, a cooperative environment among industry, government agencies and the environmental community is required.

References

American Association of Petroleum Geologists, 2002, Home Page of Division of Professional Affairs, DPA Energy Facts. (http://www,aapg,org/)

Attanasi, E.D., 2002, North Slope Natural Gas: Potential Markets and Future Development (abstract): AAPG Pacific Section/SPE Western Region Conference, AAPG Bull., v. 86, no. 6, p. 1135.

Cambridge Energy Research Associates, 2001, The North American Gas Industry: The Challenge of Growth, June 22, 2001 presentation at the IPAA’s Mid-year meeting.

(http://www.ipaa.org/press/presentations.asp#Annual2001)

Energy Information Administration, 2001, Presentation to the Committee on Resource Evaluation of AAPG, Dec. 10, 2001, Office of Oil and Gas, Reserves and Production Division. (also 2001 Energy Outlook and Projections to 2025 at http://www.eia.gov/)

Mineral Management Service (MMS), 2000, Geological and Geophysical Studies- National Assessment: Outer Continental Shelf Petroleum Assessment. (http://www.mms.gov/revaldiv/Redpublications.htm)

National Petroleum Council, 1999, Meeting the Challenges of the Nation’s Growing Natural Gas Demand, 3-vol. report. (http://www.npc.org/)

United States Geological Survey, 1995, National Assessment of the United States Oil and Gas Resources, DDS-30, 35, and 36. (also  http://energy.cr.usgs.gov/oilgas/noga/)

United States Geological Survey, 1998, The Oil and Gas Resource Potential of the Arctic National Wildlife Refuge 1002 Area, Alaska, Open File Report 98-34 (2-disc set).

 

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