Editor's note: Larry Persily, the author of this article, heads the Office of the Federal Coordinator for Alaska Natural Gas Transportation Projects, an agency promoting development of an Alaska natural gas project. His opinions are his own.
ExxonMobil expects natural gas demand to grow faster than any other fuel over the next 20 years, with power generation's appetite almost doubling worldwide by 2030.
ConocoPhillips sees more than 7 billion cubic feet a day of additional U.S. gas demand "on the bubble" as the oldest coal-fired power plants grow even older and are less able to meet new air quality standards.
And even at the low side of its demand projections, Societe Generale, an international corporate and investment banking firm, believes U.S. demand for natural gas could climb 8 billion cubic feet a day by 2020, 12 percent over today's demand. At the high end, Societe Generale sees a potential for U.S. demand to grow by as much as 31 bcf a day by 2020, or almost 50 percent.
"You gave us a very rosy picture of our beloved industry," was the first audience response after Paul Greenwood, vice president for Americas Gas Marketing at ExxonMobil, finished his presentation at a recent gas buyers conference in Los Angeles.
Speakers at the Oct. 11-12 conference talked of growing demand worldwide for natural gas, especially to replace aging and polluting coal-fired power plants in industrialized nations. They also talked of shale-gas production and how the numbers will keep climbing higher each year, more than offsetting the decline in conventional gas production. The Rockies & West conference is one of five regional events presented each year by LDC Gas Forums.
Price projections, factors
Speakers talked about the price for natural gas, and how eventually, probably, it will rise out of its deep doldrums - but how much and how soon?
Today's sub-$4-per-thousand-cubic-feet U.S. gas price can be blamed on a surplus of supply, said Jim Duncan, director of market analysis at ConocoPhillips Gas & Power. He estimated that the U.S. market, as of October, is oversupplied by about 2.7 billion cubic feet per day. But, in a market that consumes about 66 bcf a day, it will not take much of a jump in demand to eat up the cushion and send prices higher, Duncan said.
Picking an end date for the supply surplus, and the start of higher prices, will depend on the economy, future production costs (and hassles) for shale gas, coal-fired power plant closures and any permanent backlash against nuclear power, he said.
Exporting some of North America's surplus gas would have a more immediate effect on domestic prices, said Jeremy Swancoat, head of North American natural gas analysis at Deutsche Bank Global Commodities.
Sending just 2 bcf a day to overseas markets could drive up U.S. prices by as much as $2 per thousand cubic feet, Swancoat said. Producers and terminal operators have proposed more than 7 bcf a day in North America LNG export projects.
It's all about supply and demand, the presenters said. Too much North America supply chasing too little demand keeps prices down. But if demand grows, prices could rise. Demand will grow, they said, that's the easy part of the prediction. The hard part is knowing how much.
The 7 bcf a day that power generators would need for gas turbines to replace their retired coal-fired power plants "could happen within the next five years," Duncan said. Those retirements would equal about 10 percent of the nation's coal-fired power plants. Close to 20 percent of the nation's coal-fired plants are more than 45 years old.
Shale gas will meet much of that need, but production from the typical shale well declines quickly, which creates an unknown for future supply. Meanwhile, a lot of drillers are moving their rigs from gas plays to higher-value shale-oil prospects. "The shift to oil drilling will start to show up at some point" in gas production numbers, Duncan said.
It would not take much of a shift in natural gas supply or demand "to throw us out of balance," he said. One of his slides showed the range of analyst projections for natural gas prices in the 2020s, between $4.75 and $8 per mcf. ConocoPhillips markets about 15 percent of the gas sold in North America.
Several speakers referred to the production decline from conventional gas fields in North America. Even after tapping large new shale gas plays in Alberta and British Columbia, Western Canada production will only equal - maybe - its 2001 peak gas flow of 17 bcf a day, said Todd Johnson, director of marketing, U.S. Pipelines West, at TransCanada.
But there will be a significant cost to getting back closer to that 2001 number. TransCanada plans to spend as much as $1.6 billion on new pipelines by 2014 to bring that shale gas and coal-bed methane to market, Johnson said.
Deutsche Bank's Swancoat expects shale gas production to slow down Canada's production decline, maybe even level it off, but not send the number higher.
Potential demand growth
New Environmental Protection Agency regulations targeting coal-fired plants will drive much of the growth in gas demand for power generation, said Societe Generale's Harrison. The EPA's proposed Cross-State Air Pollution Rule could add 3 bcf a day to demand by 2015, as could new limitations on emissions of mercury, arsenic and other toxic substances.
In the most optimistic forecast of the two-day conference, Harrison said U.S. power plant conversions from coal to gas and oil to gas could add from 6 bcf a day to 14 bcf a day of new gas demand by 2020. Industrial growth could grow as much as 5 bcf in that same period, as could exports of liquefied natural gas from U.S. terminals.
Gas-to-liquids production and compressed natural gas vehicles could add to the demand growth, he said. "A myriad of arbitrage forces are working to the EVENTUAL benefit of U.S. natural gas demand," his slide said. "Each of these have different levels of uncertainties," he added.
Jack Weixel of Bentek Energy listed the same demand growth prospects, forecasting that coal-to-gas switching at power plants would add 6 bcf a day to demand by 2016, about half of the U.S. demand growth Bentek sees in the next five years. The consulting firm sees prices in the $5.50 to $6 range by 2016.
Whether shale gas will meet that 100 percent of that future demand is as uncertain as the demand itself. "Will shale gas be there for the long term?" asked Greenwood, of ExxonMobil. "What are the safety implications of these shale gas resources?"
He called on the attendees to go forth and explain hydraulic fracturing for shale gas to their friends, families, neighbors and business associates. "As we move closer to population centers, people ask more questions," Greenwood said. "It's up to us to educate the public" about the safety of shale drilling.
"By 2020, unconventional will be the new conventional," he said, with shale gas at 40 percent of U.S. supply, coal-bed methane and tight gas at 40 percent, and old-fashioned conventional production at the back of the pack with 20 percent.
Larry Persily heads the Office of the Federal Coordinator for Alaska Natural Gas Transportation Projects, an office established by the U.S. Congress in 2004 "to expedite and coordinate federal permitting and construction of a pipeline to deliver natural gas from the Arctic to North American markets, and to enhance transparency and predictability of the federal regulatory system for the project." This article first appeared on the Federal Coordinator's website.
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