Wood
Mackenzie looks at North American natural gas market
Posted: 07 May 2004
With the dawn of the new millennium, the North American Gas industry
began a major set of changes that will continue into the next decade.
Unanswered questions such as whether current North American gas
supplies will be there when the need arises, and if not, where will
the needed supplies come from and at what cost? are addressed in
a newly released Wood Mackenzie study, ‘Falling Short? The
Growing Challenge to Supply the North American Natural Gas Market’
“The most critical issue facing the North American natural
gas industry over the next 10 years is where will the gas come from
to fill the acknowledged gap between indigenous supply and potential
demand,” explains Bob Fleck, Vice President of North American
Gas Consulting for Wood Mackenzie. “Despite intensive efforts
to increase North American supply, increasing well decline rates
mean that any slowdown in drilling is followed quickly by declining
production. With deep-water fields expected to reach peak in the
next 2-3 years, the ability to stabilise, let alone grow US production
after 2005-2006 is very much in question.”
“LNG imports will build strongly this decade, representing
approximately 70 per cent of overall growth of continental supply,
with many proposed import and regas facilities on tap by 2010 and
beyond,” adds Fleck. “However growth in LNG imports
alone will not and cannot outrun the need for new supply in North
America. The timing of the completion of these LNG projects is critical.”
The study concludes that expected supply will constrain demand.
Overall gas demand in the US is not likely to return to 2000 levels
until 2009, as power growth is partly offset by stagnation and demand
reduction in industrial and core markets. “The industrial
sector, already challenged by a combination of a slow US economy,
high gas prices and global competition, will struggle to maintain
demand levels even equal to the already reduced 2003 level of 19.0
bcfd,” continues Fleck. “ This weakening in industrial
demand has been caused primarily by switching to residual fuel oil,
industrial product prices that have not matched the increase in
natural gas prices, cutbacks in American production, and general
belt tightening and cost cuttings across all manufacturing sectors.”
Tight supplies and a marginal power generation demand that is at
times in-elastic will force gas prices to remain strong, on average
between $4.00 and $5.50 in nominal terms through 2010.
Wood Mackenzie has combined its unique capability in the international
upstream and LNG industries with its in-depth expertise in analysis
of North American energy markets, bringing both to bear in this
new study of the future supply options for North America.
“The study addresses several critical and strategic questions
facing the North American gas market in the mid-term enabling companies
for example to understand how producers may respond to the new pricing
dynamics, or assess how growing LNG import capacity will define
the short and mid-term LNG import potential,” explains Fleck.
Other issues the study addresses are: identifying the price level
required to bridge the supply gap given the recent and continuing
build of gas-fired generation in North America and declines in US
production, measuring the implications of increased imports on the
structure of the North American gas market and on the behaviour
of gas prices, as well as anticipating the demand reaction given
a constrained supply market and evaluating how North America fits
into a Global LNG marketplace.
Wood Mackenzie is a global energy and life sciences consulting
company that provides a comprehensive range of research products,
both qualitative and quantitative, delivered via the new Wood Mackenzie
Insights Internet platform. The breadth of Wood Mackenzie’s
expertise extends beyond its high quality research, with a significant
proportion of its revenues generated from specialist consulting.
For more information see www.woodmac.com
Posted by Richard Price,
Editor Pipeline Magazine
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