Abstract

The United States Natural Gas Market has moved through some very dynamic events over the past few years. The fact that ninety-eight percent of all gas consumed in the US comes from the North American Continent plays a large part in the lack of stability in pricing of Natural Gas. The nature of the production stream feeding the demand for gas has changed drastically in the past decade. The potential demand for gas during peak usage periods of each year has changed dramatically and the maturity of the available gas development projects have all led to a greatly different market than ten years ago.

This paper will update the status of the US Gas market; the state of US production, the change in demand for gas as prices change, estimations for the potential expansion of gas supply and the need for imported gas from outside of the North American continent.

Introduction

There has been quite a lot of discussion in our industry about Liquified Natural Gas (LNG) as an imported energy source to augment the natual gas needs of the United States. In 2003, we presented SPE Paper 80949 which presented an analysis of the producing capabilities of wells in the U.S. and the need for a source of natural gas if we are going to grow its consumption1. While LNG is a potential source for future supply, we believe that there will be some other factors that could mute its potential as this market evolves to meet our needs. There will be a discussion on the status of the LNG market later in this paper.

In SPE 80949, we discussed the changing dynamics in the U.S. gas production stream which had led to the price volatility of late-2000 and early-2001. The ever increasing intrinsic decline rate of our producing gas wells means that we need to discover more new gas each year in order to maintain a constant level of production. This appears to be what US gas supplies are doing, as we will discuss, with a very high rig count we are holding domestic production level.

There continues to be very little, if any, excess wellhead gas capacity to aid in the supply of peak consumption periods (winter). This means that all of our ability to meet our needs during peak consumption rate times is underground storage. Of course increasing prices can reduce demand for gas through economics, however those types of economics are not the kind that grow an economy. Our need for increased gas storage capacity will be discussed.

Canada continues to be our primary supplier of imported natural gas. They provided approximately 14% of the gas the US consumed in 2003 according to the Energy Information Agency (EIA) and 97% of all the net imported gas during that year. In fact, Canada provided over 100% of our net imports during the 1990’s as the sum of all other imports were exceeded by our total exports.

The ability to supply US future needs will continue to depend on our ability to develop our natural gas resources here at home. As over 85% of the gas we consumed in 2003 was from domestic producing wells, both gas and oil, it is a substaintial base of supply. Any significant percentage change in domestic production will greatly overshadow a doubleing or tripleing of other import sources, Canada excluded. The care with which we develop these domestic resources will matter far more toward the stability of the US natural gas market than any other factor.