Rhetoric Will Not Solve Gas Crisis

By Donald E. Felsinger Meeting America?s energy needs is a serious business involving an enormous amount of intellectual and monetary capital. I am proud that Sempra employees were among the first to document the growing supply-demand imbalance in the nation?s natural gas market. Most energy experts believe that domestic natural gas supplies will be insufficient to meet the needs of the American economy by the end of this decade. Yet a recent guest editorial by Bill Powers on natural gas, ?We Need You Now, Leland Olds,? featured inaccuracies and a selective examination of the natural gas market to support his misguided thesis that ample supplies and reserves, combined with static demand in North America, do not warrant the construction of new liquefied natural gas (LNG) receipt facilities. Powers? February 3 editorial could not be more wrong. If future American energy policy and investment decisions are based on his analysis, the impacts on the U.S. economy and our lifestyle could be disastrous. Powers? editorial suggests the machinations of a vast natural gas pricing conspiracy involving the Wall Street Journal , U.S. government energy forecasters, independent energy consultants, the California Public Utilities Commission (CPUC), credit-rating agencies, and energy companies, including Sempra Energy. (In what may have been an oversight, Powers forgot to include Federal Reserve chair Alan Greenspan, who also has recognized the need to develop LNG and new sources of natural gas to support American business.) Let me set the record straight. Assertion: The Energy Information Agency (EIA) projects that domestic production will rise 20 percent over the next 20 years and the United States has 60 years of domestic supplies available. Fact: The U.S. consumes about 22 trillion cubic feet of natural gas per year. Past forecasts by the EIA indicated that domestic production and Canadian imports would easily meet those demands. But that rosy landscape grows darker with each new forecast. In 2001, the EIA predicted that gas production in the lower 48 states in 2020 would be 28.5 Tcf. In 2003, that estimate dropped to 21.3 Tcf. In the latest forecast, the gas production estimate for 2020 dropped to 20 Tcf. While that?s enough to meet today?s demands, it won?t match the gas demands anticipated in 2020 of 30 Tcf. We expect the trend toward a supply-demand imbalance to continue as domestic production figures become clearer. Other consultants and organizations, including the National Petroleum Council, are even more pessimistic about future gas supplies than the EIA. Well in advance of the change in EIA?s forecasts, Sempra Energy began to see basin and region production trends and per-rig productivity declines. We acted well in advance of the coming shortage to bring new gas supplies to the U.S. The bad news isn?t reserved for the production side of the equation. Demand also is affected. The EIA?s 2005 Annual Energy Outlook projects that U.S. gas demand will increase at an average of 2 percent per year through 2020. Even if one assumes that natural gas demand will remain at current levels but domestic production will decline per Sempra Energy?s forecast, the current gas supply-demand gap by 2012 could be 19 to 22 Bcf per day. Here?s the state of California gas: California produces only 14 percent of its gas, while 24 percent is imported from western Canada and 62 percent from other out-of-state sources. Little new gas is being discovered in California, and in-state gas production is declining annually by 3 to 5 percent. Production also is declining in California?s other key supply areas, such as western Canada, New Mexico, and Utah. Gas production in western Colorado and Wyoming is increasing, but most of the increase is due to a small number of fields in environmentally sensitive areas. Leading consultants forecast that gas demand in the Western U.S. will expand by 20 to 30 percent over the next 15 years, driven by population growth and migration to inland areas. The migration of natural gas?fueled electric generation to Nevada and Arizona modestly decreased California?s gas demand from 2001 to 2003. However, subsequent population increases and weather volatility (such as low rainfall in the Pacific Northwest, which limits hydropower and triggers the need for more gas-fired generation) are expected to again spur future in-state demand and meet the growth expectations of the EIA and others. The 2004 California Gas Report forecasts that between 2005 and 2020, the state?s investor-owned gas utilities? demand will grow by more than 14 percent. It should also be noted that the Natural Gas Assessment Update just released by the California Energy Commission states: ?Total U.S. production from conventional sources has flattened despite increases in drilling and wellhead prices. Canada?s natural gas production statistics indicate similar resource depletion trends.? After stating a need for increased energy efficiency and renewable sources of electricity, the report says, ?Even with these aggressive actions, however, the statewide demand for natural gas will continue to grow by at least one percent per year, requiring additional natural gas imports into the state.? The report?s executive summary goes on to list LNG from Pacific Rim countries as an import option and concludes: ?To access these natural gas supplies, the West Coast must have LNG receiving terminal(s). LNG facilities have been proposed for Washington, Oregon, California, British Columbia and Baja California, Mexico.? Assertion: Proven domestic natural gas reserves are up. Fact: U.S. gas reserves may be higher, but this requires closer examination. The future reserves being added to the forecasts are inferior in quality to the reserves now being drained. For example, to maintain a certain gas production rate, it takes three times the reserves in the Rocky Mountains as in the Gulf Coast or Gulf of Mexico. Unfortunately, most of the U.S. reserve additions touted in the EIA report and Powers? editorial are located in the Rocky Mountains?reserves in Texas, Louisiana, and the Gulf of Mexico have been shrinking at a 7 percent annual rate over the past few years. Unless the U.S. can find some high-quality gas reserves, the production rate is headed downward. The primary question is: How fast? Assertion: The CPUC inexplicably authorized SoCal Gas and San Diego Gas & Electric to terminate gas capacity contracts to artificially create a market for new gas supplies. Fact: The majority of SoCal Gas?s existing gas capacity contracts will expire in 2005 and 2006. The CPUC requires that SoCal Gas and the state?s other investor-owned utilities contract for interstate pipeline capacity to meet 100 percent to 120 percent of the average annual needs of their core customers. The CPUC has embraced a strategy of supply diversity that takes into account anticipated production declines and supply availability from the Southwestern gas basins. It also factors in potential increases in the availability of Rocky Mountain?area sources and the potential availability of LNG from proposed terminals along the West Coast. SoCal Gas has recently sought CPUC approval for new contracts for nearly 1 Bcf per day of interstate pipeline capacity, providing considerable savings for core customers as compared to the expiring contracts. The contracts have staggered terms that will allow for supply diversity in the future. Given his wide-ranging anti-LNG assertions in Energy Circuit?s guest editorial, we were surprised to read Powers? comments in the February 3 edition of the San Diego Union-Tribune favoring a floating LNG platform proposed off the coast of Baja California, Mexico, about five miles off the coast of Rosarito Beach. ?It would have the least environmental impact and be the most competitive way to get LNG to the West Coast,? he said. If Powers truly believes LNG is unneeded in California, what makes the Rosarito LNG project any more necessary than the ones he has criticized in the pages of Energy Circuit ? (For the record, Sempra LNG will wholly own, construct, and operate the Energ?a Costa Azul LNG project.) Sempra Energy has spent countless hours studying the natural gas markets. Before investing in large-scale infrastructure projects such as LNG terminals and interconnecting pipelines in Mexico, Louisiana, or Texas with individual price tags of as much as $1 billion, we must have confidence in our market analyses and forecasts. Critics such as Powers, who have nothing at stake, are entitled to their opinions, but will not have to endure negative consequences when their predictions are proved wrong. At Sempra Energy, we are committed to bringing new energy supplies to U.S. consumers. We take this commitment very seriously and have invested billions of dollars toward that end. Donald Felsinger is president and chief operating officer of Sempra Energy.

Over 11K Stories!

| Independently Powered Energy News

Rhetoric Will Not Solve Gas Crisis

vdharadmin

Related Posts

Op-Ed: Before and After Net Energy Metering 3, A Thought Experiment

Auld Lang Zine

CPUC Chops Solar Rooftop Payments & Adds Battery Incentives, Few are Happy

Business Coalition Holds Off on Pro-LNG Ads