13-12-03 The US natural gas industry is in the midst of a turbulent
transformation as petroleum giants such as ChevronTexaco and ExxonMobil
increasingly hunt fuel overseas, leaving smaller players scrambling to pick up
the slack domestically. The shift exacerbates an already constrained market in
which supplies have been tight and prices high amid rapidly declining
productivity in the nation's aging natural-gas fields, analysts and industry
officials said.
Over the past two to three years, "there has been a major de-emphasis on
the importance of exploration in this country" by the world's largest
petroleum companies, said Rhone Resch, vice president of energy markets at the
Natural Gas Supply Association, a Washington-based trade group. "That
results in fewer new fields that are going to bring significant new
supplies."
The transition has benefited smaller companies struggling to make up the
difference as a result of high prices, boosting profits and stock prices. Yet it
has come at the expense of homeowners and industrial users, who could see high
energy bills for several more years.
Longer term, however, America will gain access to vast international supplies
that should help ease the current crunch, analysts and executives said. Indeed,
as the biggest players expand natural gas production in countries such as
Indonesia, Nigeria, Qatar and Russia to boost reserves and please shareholders,
they do so with the understanding that a significant portion of this fuel will
eventually be exported to America.
"That's what the future holds for natural gas," said Robert Ineson, a
Houston-based director at Cambridge Energy Research Associates.
Trouble is, the United States currently has limited infrastructure to support
the growing intercontinental trade for natural gas. To get it across oceans, the
fuel must be cooled to its liquid state, shipped in refrigerated tankers and
then "re-gasified," so it can be piped to homeowners, power plants and
manufacturers.
There are just four US-based terminalstoday that can receive tankers carrying
LNG. While roughly 30 new LNG terminals have been proposed and LNG imports are
expected to quadruple by the end of the decade, it will be several years before
substantial new capacity is added. Keeping up with rising demand between now and
then will be tough, experts said.
Natural gas imports from Canada have been growing to compensate for the slide
in US productivity, but that safety net is gradually fraying, analysts said,
because drillers there are also working harder every year just to keep output
steady.
Today, the US uses roughly 60 bn cf of natural gas each day, with nearly 15 %
coming from Canada via pipeline and 2 % from LNG. Demand for natural gas is
expected to rise 14 % by the end of the decade, according to Standard &
Poors. Ineson predicted there will be another "four to five years where
things are going to be a little difficult."
With the price of natural gas soaring -- January futures approached $ 7 per
1,000 cf -- many companies are drilling aggressively. Baker Hughes, a
Houston-based oil services firm, reported Dec. 5 that the number of rigs
pursuing natural gas in the United States was up 38 % from the year before. And
that doesn't include the thousands of mom-and-pop operators, who are even more
price sensitive, investing their limited resources in the nation's oldest and
least productive wells.
Yet despite this surge in drilling, average daily production in the United
States is on pace to decline by 2.8 % in 2003, according to a Lehman Brothers
analysis of 49 of the industry's biggest companies. Even the Energy Department
estimate of 2 % growth illustrates the magnitude of the industry's struggle to
boost output.
The reduced drilling activity by deep-pocketed and technologically superior
companies such as BP, ExxonMobil, ChevronTexaco and Shell is an important
factor, analysts and industry officials said.
"You wouldn't see production falling as much and you wouldn't see as much
pressure on prices" if major petroleum companies were more active, said
Marshall Adkins, an oil and gas analyst at Raymond James & Associates in
Houston. “That doesn't mean they would be able to reverse the trend,
though”, Adkins said.
Compared with last year, BP's natural gas production in the lower 48 states
fell 13 %, according to Lehman Brothers. ExxonMobil's was down 10 %,
ChevronTexaco's slipped 11 % and Shell's declined by 15 %.
Officials from these companies say the process of selling off land leases in the
lower 48 to smaller companies began when aging natural gas fields in Oklahoma,
Texas, the Gulf of Mexico and elsewhere required significant investments every
year just to keep production flat.
There are still some attractive prospects, company officials said, but the
more complicated technology required to extract the fuel is, for now, too
expensive. Meanwhile, other untapped areas they would like to develop -- in the
Rockies, eastern Gulf and off the coast of California -- remain off-limits for
ecological reasons.
These factors -- coupled with a sharp drop in the costs of making and shipping
LNG -- led the major petroleum companies to migrate overseas in their hunt for
natural gas.
"We'll go wherever the opportunities are," said Alan Stuckert, public
affairs manager for ExxonMobil's gas and power marketing division. "If we
could drill in certain areas of the US, we'd be there."
Meantime, companies such as Apache, Anadarko Petroleum, Devon Energy and EOG
Resources, are boosting domestic production through a combination of new
drilling and acquisitions.
"We're the fourth most active driller in the United States," EOG
Resources CEO Mark Papa said. "That's just staggering to me."
Based on footage drilled, ExxonMobil, which is 50 times bigger than EOG, is the
16th most active driller so far in 2003, according to RigData of Fort Worth,
Texas.
"That's just an indicator of what's going on," Papa said. "It's
got a lot of implications for the nation. We're probably in a period where we're
going to have higher prices."
Source: The Associated Press