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Gas Supply:Too little, Too late?

GAS SUPPLY
Fortnightly Magazine - September 2004

Neither solution seems likely to develop before 2012 at the earliest.

Other prospects for North American natural gas supplies involve coalbed methane, mostly in Alberta and British Columbia. A partnership of EnCana Corp., based in Calgary, and MGV Energy Inc., a subsidiary of Houston-based Quicksilver Resources Corp., has completed testing of shallow wells in Alberta and has begun drilling production wells. "It appears that we have defined a large fairway of commercial productive coals," says Glenn Darden, Quicksilver's president and CEO. "The lack of water in these coals makes the economics of this project compelling."

Quicksilver estimates its coalbed methane reserves total about 131 Bcf. Although Canada's total coalbed methane reserves could be huge, the amount of commercially recoverable gas remains uncertain.

More certain resources can be found in the United States, in the Rocky Mountains, and the Deepwater Gulf of Mexico. The Rockies in particular have emerged as the United States' largest gas fields. "The supply picture is robust in the Rockies," says Kirk Morgan, vice president of marketing and regulatory affairs for Kern River Pipeline Co., MidAmerican Energy's pipeline arm. Kern River completed a pipeline expansion in 2003 to bring its total pipeline capacity to 1.7 Bcf/day, and other operators are adding more capacity.

The National Petroleum Council estimates the U.S. Rocky Mountains have 125 Tcf of proven reserves. The problem, however, is that about 69 Tcf of these reserves are inaccessible because they are found under environmentally sensitive land. Thus the lion's share of new Rocky Mountain gas won't be available for U.S. markets unless lawmakers lift environmental restrictions on drilling and production-not a likely prospect for the near term.

"If anything, the pendulum is swinging against implementation of these initiatives right now," Zenker says. "Land access was debated during the formation of the Energy Bill that stalled in Congress, and the issue proved to be intractable."

As gas prices rise, however, policy-makers might become more amenable to easing environmental restrictions in the Rockies. Some improvements might be found in streamlined permitting processes for areas that are already open to gas drilling. For the time being, however, Rocky Mountain gas will remain a limited answer to the gas-supply problem.

Mind the Gap

Gas markets are sending the right signals to both gas developers and customers. But gas supplies are simply too far away-in both distance and time-for developers to fill the gap between supply and demand. Furthermore, no single solution will be adequate by itself.

"Pipelines can't even hope to fill the growing need and offset the domestic sources," says Tokmakian of Accenture. "The Mackenzie Delta will come in, but it won't solve the problem. Neither will Alaska. North American gas supplies face a sustained-decline model, period."

That means North America must begin importing more gas from overseas via LNG terminals. This fact is not lost on the Federal Energy Regulatory Commission (FERC), which has made progress to improve processes for permitting LNG terminals. Specifically, the commission is working to clarify its baseline science models, and to coordinate and centralize project reviews and approvals. "FERC has been careful lately