Natural Gas Reserves

1
Natural Gas Reserves Current Industry Status
NARUC Staff Subcommittee on Accounting
Finance Fall 2005 Meeting

• Bruce McDowell
• American Gas Association
• 2005

2
North American Gas Market

• North American supply/demand balance is and
  will remain tight.
• Gas consumption grows.
• New frontier gas supplies are necessary and
  take time.

• Gas prices remain relatively high.
• High levels of gas price volatility continue.
• LNG imports become an important player in natural
  gas pricing.

3
Gas Demand Outlook
Source Energy and Environmental Analysis (EEA)
4
Estimated Peak Month Gas Supplies2005-2006

• Source Bcf
• Conventional Prod. 1,600 57.3
• Underground Storage 840 30.1
• Supplementals 6 0.3
  
• Net Canadian Imports 300 10.8
• LNG Imports 50 1.8
• Subtotal 2,796 100.0
• Mexico Exports 33
• Total Gas Supplies 2,763
• (Do not add due to rounding)

5
Working Gas in Underground Storage Compared With
5-Year Range (EIA)
6
U.S. Natural Gas-Directed Drilling Activity
Short-Term Energy Outlook, Sep. 2005
7
Lower-48 Dry Gas Production vs.Dry Gas
Productive CapacitySource Energy and
Environmental Analysis, Inc.
8
Markets for oil and natural gas have been subject
to a degree of strain over the past year not
experienced for a generation. Increased demand
and lagging additions to productive capacity have
combined to absorb a significant amount of the
slack in energy markets that was essential in
containing energy prices between 1985 and 2000.
Federal Reserve Board Chairman Alan
Greenspan April 5, 2005
9
Recoverable Gas Resources in the US, 1968-2004
Trillion Cubic Feet
Coalbed Methane
Potential Resources
Proved Reserves
Cumulative Production
Source Potential Gas Committee
10
Locations of Potential Natural Gas Resources
SOURCE Potential Gas Committee, 2005
http//www.mines.edu/research/pgc/
11
Natural Gas Proved Reserves1991 2003Energy
Information Administration
12
Natural Gas Production Is Responsive to Market
Price
SOURCE U.S. Dept. of Energy, Energy Information
Administration
13
Lower-48 Annual Gas ProductionBy Region 2000-2010
Source Lippman Consulting, Inc.
14
STATUS OF U.S. UNCONVENTIONAL GAS PRODUCTION
In the past three years, unconventional gas has
helped maintain U.S. production and now accounts
for 35 of U.S. natural gas supplies.
JAF2004074.XLS
19.4
19.2
20.0
2000 2003
15.0
35 of U.S. total
10.0
U.S. Natural Gas Production (Tcf)
6.8
5.8
5.4
5.5
5.0
3.1
2.8
0.0
Associated Gas
Total Domestic Production
Onshore Conventional
Unconventional Gas

• Source
• Conventional/Offshore EIA Annual Reserve
  Reports.
• Unconventional Advanced Resources International
  data base.

15
STATUS OF U.S. UNCONVENTIONAL GAS PRODUCTION
All three of these unconventional gas resources -
- tight gas sands, coalbed methane and gas shales
have experienced increased production.
5.0
4.6
2000 2003
4.0
4.0
3.0
U.S. Natural Gas Production (Tcf)
2.0
1.6
1.4
1.0
0.6
0.4
0.0
Gas Shales
Coalbed Methane
Tight Gas Sands
Source Advanced Resources International data
base.
16
(No Transcript)
17
Drilling Costs are Soaring!

• With a barrel of crude oil 40 higher
• than one year ago
• Gulf of Mexico
• Drilling Day Rates Jan 05 Jan 04
  Increase
• Jack-up Rig (250-300 ft) 48,611 32,273
  51
• Semisub. (5001-7500 ft) 158,375 62,250 154
• Semisub. (7501 or more) 200,000 150,000 33
• Self-positioning Drillship 225,000 137,000
  64
• Each player reaches for a share of the energy
  value pie.
• Source ODS-Petrodata

18
Canadian Marketed Production And Net Exports to
US 2000-2009
19
New Supply Must ComeFrom New Areas
But Will Only Come at a Price that Supports
Development.
Source CMS Panhandle Companies
20
LNG Imports and Import Capacity2000-2009
21
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22
Alaska
23
ALASKAN GAS IS READY AND WAITING
Source BP
24
Total Lower-48 Gas SupplyBy Source 2000-2009
Sources Lippman Consulting, Inc., AGA, EEA, CAPP
25
CRITICAL SUPPLY ISSUES TRADITIONAL SOURCES

• LOWER-48
• Declining Productivity
• Access Real vs Perceived
• Moratoria
• Takeaway Capacity
• Deepwater Activity Level
•  
•  

26
CRITICAL SUPPLY ISSUES TRADITIONAL SOURCES

• CANADA
• Declining Productivity
• Mackenzie Delta Pipeline Heavy Oil
• CBM
• Export or Husband Resource?
•  
•  

27
CRITICAL SUPPLY ISSUESNON TRADITIONAL SOURCES

• LNG
• World View vs Imports are Bad
• NIMBY
• Safety perception
•  ALASKA
• Justifiable Subsidy?
• Timing?
•  

28
What Can We Do?

• Promote energy efficiency and conservation
• Encourage the development of storage
• Encourage balance between economic and
  environmental values
• Diversify sources of power generation
• Encourage Alaskan supply
• Encourage LNG supply

29
SOURCES OF CURRENT U.S. NATURAL GAS SUPPLY
2003 22.5 Quads
Canada 3.3
LNG O.5
Lower-48 18.7
30
SOURCES OF PROJECTEDU.S. NATURAL GAS SUPPLY
2020 30.7 Quads
ALASKA 2.7
LNG 6.8
CANADA 2.3
LOWER-48 19.0
31
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32
The Impact of Hurricane Katrina
Photo by NASA
33
Gulf of Mexico Energy Production Survived Recent
Storms
SOURCE AAPG Explorer, September 2005,
http//www.aapg.org/explorer/2005/09sep/hurricane_
tracks.jpg
34
But Katrina Packed A Knockout Punch
SOURCE National Oceanic Atmospheric
Administration
35
Katrina Damaged Production Assets
SOURCE AFP/Stan Honda
36
Katrina Damaged Production Assets (Contd)
SOURCE Shell Oil
37
Shut-In Natural Gas Production Due To Katrina
About 6 Of Total US Production Still Out Of
Commission
Producing District
Source Minerals Management Services, www.mms.gov
38
Prices Jumped in Katrina Aftermath
39
Short-Term Impacts From Katrina

• Winter gas price forecasts increase 16
• Demand decrease of 1.4 Bcf/day (3)
• Storage injections decrease
• Higher bills for consumers
• Supply is adequate

40
Thank You!