Tuesday April 25, 2000 6:45 pm Eastern Time
U.S. natgas suppliers seen facing tough challenge
By Andrew Kelly
HOUSTON, April 26. 2000 (Reuters) - U.S. natural gas suppliers face a tough challenge in meeting strong growth in demand for the fuel, experts told an industry conference in Houston on Tuesday.
Bodies such as the U.S. Energy Information Administration and the National Petroleum Council have projected that U.S. demand for natural gas could rise to 30 trillion cubic feet a year by 2010 from current levels of around 22 trillion a year.
But finding and delivering enough gas to meet such an increase, even if demand takes another five or 10 years to reach such levels, will be no easy task, the conference was told.
The waters of the Gulf of Mexico currently provide about one quarter of the nation's natural gas requirements and are expected to generate the lion's share of future production growth.
But Gary Lore of the U.S. Minerals Management Service said that under an MMS "base case forecast" gas production from the Gulf of Mexico would rise from about 5 trillion cubic feet a year now to a peak of 6.1 trillion in 2005 and then start to decline.
Under an "aggressive case forecast" production would peak at 6.7 trillion cubic feet in 2010 then taper off.
In the absence of unforeseen developments, such as removal of restrictions on offshore oil and gas exploration, federal offshore waters would probably not be able to maintain their current contribution to the nation's gas requirements, he said.
Economic and environmental advantages have combined with deregulation to drive steady growth in U.S. demand for natural gas in recent years, especially for use in power generation.
Current prices for natural gas futures of over $3.10 per thousand cubic feet are unusually strong for this time of year and reflect concerns that gas may be in short supply by the summer because of lagging exploration and production activity.
Chevron Corp. executive Andy Hardiman (NYSE:CHV - news) said that to meet demand of 30 trillion cubic feet by 2020, average daily gas production in the Gulf of Mexico would have to rise to 22 billion cubic feet from about 14 billion now.
Hardiman did not rule this out, but pointed to factors such as declining production rates in shallow water fields and the predominance of oil rather than gas in the deepwater where most future exploration and production is expected to take place.
"If a lot of things line up... we can get pretty close to 22 billion cubic feet. On the other hand, if a lot of things don't line up, we'll fall way short," he said.
BP exec says gas needed from Alaska, Canada north
By Jeffrey Jones
CALGARY, Oct 17 (Reuters) - A top BP Amoco <BP.L> official said on Tuesday that industry bickering over whether Alaskan or Canadian Arctic natural gas should be developed first is meaningless because U.S. markets are in dire need of both.
Tim Holt, president of BP Canada Energy Co., said gas producers should work toward formulating a development plan for the entire region in the face of forecasts showing gas demand could outstrip
supplies from traditional sources by as much as 4 billion cubic feet a day within a decade.
BP is a major holder of reserves on Alaska's North Slope and the Mackenzie Delta-Beaufort Sea region of northern Canada. Much debate in the industry has centered on which region would be initially served by a multibillion-dollar pipeline.
"The demand and the demand growth projections certainly show pretty impressive supply gaps going forward. I think having conversations about too much supply at a time when gas is selling for over $5 (per million British thermal units) in the U.S. is kind of crazy, to be blunt," Holt told Reuters after giving a speech to an industry
"It's the wrong conversation to be having. The conversation should be about how to get as many supply sources on as quickly as we can."
Industry and government interest in developing huge gas deposits in the frigid regions is snowballing as gas prices in Canada and the U.S. surge amid fears of a supply squeeze.
BP is studying various pipeline routes to ship gas from its Prudhoe Bay, Alaska holdings, which it shares with Exxon Mobil Corp. <XOM.N> and Phillips Petroleum Co. <P.N>. It has targeted finalizing a proposal by the second half of 2001.
In Canada, major producers Imperial Oil Ltd. <IMO.TO>, Gulf Canada Resources Ltd. <GOU.TO>, Shell Canada Ltd. <SHC.TO> and Exxon Mobil have been studying the feasibility of developing their Mackenzie
Delta gas reserves in Canada's Northwest Territories.
Current major pipeline proposals include the $8-billion Alaska Highway route to Alberta from Prudhoe Bay, a 2,700 km (1,680-mile) line with a capacity of 2.5 billion cubic feet a day. That project, led by Calgary-based Foothills Pipe Lines, co-owned by Westcoast Energy Inc. <W.TO> and TransCanada PipeLines Ltd. <TRP.TO>, first won its approvals in the late 1970s, but most of it was never built due to falling commodity prices and then-unresolved native land claim issues.
A 1,760-km (1,095-mile) pipeline to Alberta from the Mackenzie Delta with capacity of up to 1.2 billion cubic feet a day -- a plan favored by many Canadian producers -- is also being considered. Estimates for when any of the gas could start flowing range from 5-7 years.
Holt said BP was working to bring the Alaskan producers together with a development scheme, independent of what the Canadian companies are studying. "We're a Mackenzie owner as well and we're going to want to get
somehow involved in the Mackenzie conversations in some way -- in a cooperative way," he said. "I think all groups need to think about opening the doors to others and the two groups need to think about having connection points between the two as well," he said.
Meanwhile, a Canadian government official said several ministries and regulatory agencies were working toward streamlining the process for approving any projects as well as making sure northern communities and aboriginal groups would share in the benefits.
Dennis Wallace, associate deputy minister with the Indian Affairs and Northern Development ministry, said that by early next year, the various government bodies would be in a position to start weaving together a regulatory process. Business News
Online Story (Sep 20, 2000)
Dain Rauscher Wessels analysts predict natural gas crisis
A natural gas crisis is brewing, with too little new North American supplies coming on stream to significantly affect rapidly growing demand, Dain Rauscher Wessels Inc. analysts said Tuesday at the start of their 3-day annual energy conference in Houston. Supply and demand dynamics are shaping up for trouble, especially for a peak demand period in early spring.
In various presentations during the first day of that conference, producers and service company executives said they see upstream activity increasing through 2001 and beyond, primarily as a result of growing domestic demand for natural gas and a slower recovery of international oil markets.
Yet despite a sharp increase in domestic gas drilling since last year, gas production from the lower 48 states remained flat through July, said Ray Deacon, who follows exploration and production operations at Dain Rauscher Wessels.
While total gas reserve replacements will be "well in excess of 100% this year," Deacon said, "we won't see a real increase in supplies because most of the drilling is in areas where additional pipeline is currently or soon will be needed."
He predicts lower 48 production will grow by 0.5 to 1 bcfd in 2001, primarily as new coal bed methane and Gulf Coast production offset continued declines in the Gulf of Mexico. Canadian imports also should grow by 200-500 MMcfd next year.
But new drilling in the deep waters of the gulf and other frontier regions, along with renewed interest in Gulf Coast exploration, will not provide a significant supply boost over the next year, Deacon predicted.
And although imports of liquefied natural gas—particularly from Trinidad—are rising significantly "in percentage terms," he said, it is building "from a very low level."
Meanwhile, fellow analyst John Myers sees growing demand for gas, led by new power plants. Although the recent fly-up of gas prices has clearly affected industrial demand, he said, that is more than offset by growing demand from new gas-fired power plants.
More than 275 gas-fired electrical generation plants are planned to begin operations through 2006, up from 158 a year ago, which would increase gas consumption by more than 8.5 tcf. Even if all of those plants are not built as planned, Myers said, there will be a significant jump in demand for gas as a result of the pending "death" of coal as a competing fuel.
With environmental concerns on the rise around the globe, Myers predicted that, at some point, there will be no place for coal outside of steel manufacturing.
Coal supplied 24% of total world energy in 1999 and 25% of US energy. As coal is replaced in those markets, Myers said, future consumers will pay a premium for gas "for environmental reasons."
Meanwhile, he said, the US appears headed into winter with gas inventories of less than 2.585 tcf—"the lowest ever," down 140 bcf, or 5%, from the previous low in the fall of 1996.
Another warm winter like 1999 would result in a similar drawdown of 1.964 tcf, with a near-record low of only 621 bcf remaining in inventory next spring. But a cold winter could trigger "a disaster scenario," with a drawdown of nearly 2.4 tcf. That would leave a record low inventory of 186 bcf next spring at a period of record high demand, said Myers.
In the interim, the previously dysfunctional Organization of Petroleum Exporting Countries has regained control of the world oil market. With 90% production capacity utilization, cartel discipline works well enough to maintain an average price of about $25/bbl for West Texas Intermediate crude through 2001 "and probably longer," said Dain Rauscher Wessels analyst Stephen Smith.
Spurred by those factors, the US rig count will be up 45% this year and increase another 20% in 2001, said James Wicklund, another Dain Rauscher Wessels expert.
Canada will be looking to increase its production, while national and integrated oil companies will accelerate spending in international markets, he said.
But the service industry's need to build new rigs and other equipment is still "held hostage by investors" who "want to own company stocks up to the day they add new capacity," Wicklund said.
Shortages of qualified workers, critical equipment, and manufacturing equipment will become "the most critical factors facing this business," he predicted.
Washington to Canada: Fill 'er up
It's no wonder Bill Clinton opened U.S. oil reserves last week, says MAUDE BARLOW. NAFTA guarantees that he can top up his country's tank with our fuel!
Tuesday, September 26, 2000
Considering the uproar over the price of oil, it's absolutely remarkable that few recall the debate that raged over our energy sovereignty a decade ago. That was just before Canada ceded total control of its oil and gas reserves in both the Canada-U.S free-trade agreement, signed in 1989 by Brian Mulroney, and its successor, the North American free-trade agreement, signed in 1994 by Jean Chrétien. Those deals left Canadians at the mercy of global prices and without the power to conserve these precious resources.
And now here we are.
The first free-trade agreement was negotiated in the mid-1980s against a backdrop of media reports that the United States was running out of energy. The American Gas Association reported in 1986 that supplies in the lower 48 states were virtually gone, and numerous U.S. government studies warned of looming oil and electricity shortages. American trade negotiators and politicians made no bones about the importance of securing access to Canada's energy supplies in the trade deal.
A 1985 U.S. congressional report called Canada's regulatory control over its natural gas a "direct restriction of American rights to Canadian gas" and called for the American government to make guaranteed access to Canadian supplies a point of national security. Ann Hughes, the ranking U.S. Commerce Department negotiator, was forthright about her country's wasteful energy habits, and admitted that Canada's energy, secured by the free-trade deal, would forestall conservation practices in the United States. Edward Ney, then U.S. ambassador to Canada, said later that Canada's energy reserves were the prime motivation for the United States in the negotiations.
Newly minted prime minister Brian Mulroney didn't waste any time delivering; only weeks after his 1984 election, he told a blue-chip corporate audience in New York that Canada was "open for business." He called the practice of maintaining emergency reserves "odious" and, declaring that Canada had not been built by expropriating "other people's property," promised American business full access to Canada's energy supplies.
The Mulroney government deregulated oil and gas exports and dismantled most restrictions on American foreign investment in the energy industry, once again opening up Canada's resources to domination by an ever-smaller, ever-more powerful group of transnational corporations with no interest in Canada.
The trade agreements exempted Canadian government subsidies for oil and gas exploration from trade challenge, ensuring that Canadian public funds would continue to pay for uncontrolled and environmentally destructive fossil-fuel exploration -- a process that has already destroyed habitats in the North and that threatens the sensitive spawning grounds off Cape Breton and Newfoundland, all to the benefit of transnational corporations.
The National Energy Board was stripped of its powers and the "vital-supply safeguard" that had required Canada to maintain a 25-year surplus of natural gas was dismantled. No government agency or law now exists to ensure that Canadians have adequate supplies of energy in the future.
Export applicants, Canadian or American, were no longer required to file an export impact assessment and the all-Canadian gas distribution system was abandoned, setting off a frantic round of North-South pipeline construction. Export taxes on our energy supplies were banned. Thus our governments lost a source of tax revenue, and American customers, who don't have to pay the GST, gained a price advantage over Canadian consumers.
Most important, the trade agreements imposed a system of "proportional sharing," whereby Canadian energy supplies to the United States are guaranteed in perpetuity. In an astonishing surrender of sovereignty, the government of Canada agreed that it no longer has the right to "refuse to issue a licence or revoke or change a licence for the exportation to the United States of energy goods," even for environmental or conservation practices.
This led to a spectacular increase in the sale of natural gas to U.S. markets, where U.S. distribution companies, supplying a much larger population, were able to sign long-term contracts at rock-bottom prices. Canadian consumers were left to compete for their own energy resources against an economy 10 times bigger with rapidly dwindling reserves and accelerating demand.
The free-trade agreements committed Canada to an energy policy driven by massive, guaranteed exports to the United States, corporate control of supplies and an economic policy more dependent than ever on the exploitation of primary resources. When prices inevitably rose, the United States, which never gave up its right to store vast supplies of energy for emergencies, was able to dip into its reserves and bring down the price of gas for Americans.
When asked why he would use up reserves supposedly earmarked for such emergencies as war or disaster, President Bill Clinton said last week that the reserves would be restocked immediately.
This is because the United States has a security blanket. Under NAFTA's proportional-sharing provision, Canada must replenish even the U.S. reserve supply -- by law and in perpetuity. The short-term gain for American consumers in lower energy prices may come at great expense to Canadians this winter.
The Canadian government, on the other hand, is left with the limited choices of lowering fuel taxes, thereby forfeiting important tax revenue, or giving direct financial assistance to low-income families, using public funds to do so. In either case, the transnational energy companies get to deflect attention from their outrageous profits, and the demand for their environmentally harmful products continues to grow.
Jean Chrétien is looking for an election issue. I'd say we have one.
Maude Barlow is national chairperson of the Council of Canadians.