Natural gas is a vitally important source of energy for all sectors of the economy in the United States. Maintaining an adequate supply of this important resource is thus extremely important to preserving and improving our quality of life. This section will discuss the supply of natural gas in the United States, as well as factors that affect the ability of producers to bring natural gas to market in a timely and efficient manner. Scroll down, or click on the links below to explore the various aspects of natural gas supply in the United States:
Meeting Natural Gas Demand
The United States has vast resources of natural gas available for extraction. The Energy Information Administration (EIA) estimates that there are 1,279.5 Trillion cubic feet (Tcf) of technically recoverable natural gas resources in the United States. The National Petroleum Council estimates U.S. recoverable natural gas resources to be 1,451 Tcf, while the Potential Gas Committee estimates a level of 1,127 Tcf.
For more information on the size, makeup, and characteristics of natural gas resources in the United States and worldwide, click here.
Given U.S. production levels in 2002 and the National Petroleum Council's estimate for available domestic resources, there is enough natural gas in the United States to meet over 75years of domestic production. This estimate, although not taking into account expected increasing levels of domestic production, or the potential opening up of access to currently restricted land, offers a good idea of how much domestic natural gas to which the United States currently has access.
The United States is a large consumer of natural gas. In 2002, the United States used about 22.8 Tcf of natural gas, making it one of the worldwide leaders in natural gas consumption. According to the Energy Information Administration's (EIA's) International Energy Outlook 2003, the United States accounted for over 25 percent of total worldwide consumption in 1999.
To review the demand for natural gas in the United States, including factors that are expected to shape future demand, click here.
In order to meet the demand for natural gas, the United States relies on domestic production, imports of dry gas, and imports of Liquefied Natural Gas (LNG). Most of the natural gas that is consumed in the United States is produced domestically, with the balance of dry natural gas being imported mainly from Canada. Imports of LNG also serve to meet the growing demand for natural gas in the United States. In addition to domestic production and imports, natural gas in storage is also used to ensure that demand for natural gas in the United States is satisfied throughout the year.
 |
| Percent of Domestic Production By State |
| Source: EIA - Natural Gas Monthly June 2002 |
Domestic Natural Gas Production
According to the EIA, 19.05 Trillion cubic feet (Tcf) of dry natural gas was produced in the United States in 2002. This represents over 84 percent of total domestic consumption. This compares to crude oil, where only about 39 percent of consumption is met by domestic production. The United States is much less reliant on other countries for its natural gas supply than it is for its supplies of crude oil. Many believe that natural gas is a much more reliable source of energy, considering such a high proportion of domestic demand is met by domestic production.
Domestic natural gas production comes primarily from 5 states: Louisiana, New Mexico, Oklahoma, Texas, and Wyoming. In fact, according to the EIA, these 5 states were responsible for just under 80 percent of total marketed natural gas production in 2001.
For more information on U.S. domestic natural gas production, click here to visit the EIA's website.
Dry Natural Gas Imports and Exports
According to the Energy Information Administration (EIA), net imports of natural gas accounted for 15 percent of natural gas use in the United States in 2002. About 95 percent of U.S. natural gas imports are from Canada. According to the EIA, net imports from Canada equaled 3.49 Tcf, and this level is expected to decrease at an annual rate of 1.4 percent to a level of 2.56 Tcf per year in 2025.
Under the terms of the North American Free Trade Agreement (NAFTA), producing companies operate freely across the U.S./Canada border, moving gas from Canada's major producing regions in Alberta and British Columbia as well as offshore from Nova Scotia to U.S. markets in the West, Upper Midwest, and Northeast. The natural gas pipeline transmission systems of the United States and Canada are highly integrated. Canada's vast gas reserves, coupled with its relatively small population, provide the United States with a reliable source of natural gas imports to help meet rising demand.
The Department of Energy and the Federal Energy Regulatory Commission (FERC) are responsible for the regulation of natural gas imports and exports in the United States.
The United States is also involved in the cross-border trade of natural gas with Mexico. However, the U.S. is a net exporter of natural gas to Mexico. In 2002, the U.S. exported 0.26 Tcf of natural gas to Mexico, and is expected to remain a net exporter into the future. Export levels to Mexico are expected to reach 0.12 Tcf per year by 2025.
For more information on the imports and exports of natural gas in the United States, visit the EIA here.
Liquefied Natural Gas
Liquefied natural gas (LNG) imports represent an increasingly important part of the natural gas supply picture in the United States. LNG takes up much less space than gaseous natural gas, allowing it to be shipped much more efficiently. For more information on LNG, click here.
LNG that is imported to the United States comes via ocean tanker. The U.S. gets a majority of its LNG from Trinidad and Tobago, Qatar, and Algeria, and also receives shipments from Nigeria, Oman, Australia, Indonesia, and the United Arab Emirates.
According to the EIA, the U.S. imported 0.17 Tcf of natural gas in the form of LNG in 2002. LNG imports are expected to increase at an average annual rate of 15.8 percent, to levels of 4.80 Tcf of natural gas by 2025.
Factors Affecting the Supply of Natural Gas
The production of natural gas in the United States is based on competitive market forces: inadequate supply at any one time leads to price increases, which signal to production companies the need to increase the supply of natural gas to the market. Supplying natural gas in the United States in order to meet this demand, however, is dependent on a number of factors. These factors may be broken down into two segments: general barriers to increasing supply, and those factors that affect the short term supply scenario.
 |
| Skilled Workers - A Vital Resource |
| Source: NGSA |
Short Term Supply Barriers
In a perfect world, price signals would be recognized and acted upon immediately, and there would be little lag time between increased demand for natural gas, and an increase in supplies reaching the market. However, in reality, this lag time does exist. There are several barriers to immediate supply increases which affect the short term availability of natural gas supply. They include:
- Availability of Skilled Workers - The need to train and hire skilled workers results in lag times between times of increased demand and an increase in production. For example, from 1991 to 1999, a prolonged period of relatively low prices indicated adequate supplies of natural gas existed, and the exploration and production industry contracted in response. During this period, the U.S. Bureau of Labor Statistics recorded a 26 percent average decrease in employment in the oil and gas extraction industry. Some of these workers left the industry altogether rather than remain unemployed. When production companies began to react to higher prices in late 1999, the need to find and train skilled workers contributed to a slower increase in activity than would have been the case if skilled workers were plentiful. To counter this problem, many production companies offer increasingly high wages, as well as scholarships and educational contributions to attract professionals to the industry.
Availability of Equipment - Drilling rigs are very expensive pieces of equipment. Price volatility in the industry makes it very difficult for producers, as well as production equipment suppliers, to plan the construction and placement of drilling rigs far in advance. Prolonged periods of low prices results in reduction of the number of available rigs. When prices respond to increase demand, and drilling activity increases, time is required to build and place an adequate number of drilling rigs. For this reason, drilling rig counts are a good indication of the status of the oil and natural gas production industry. As can be seen in the graph, an increase in operational rigs lags behind period of high prices. For more information on rig counts, click here.Natural Gas Prices and Drilling Rig Operation Source: EIA - 'Midterm Prospects for Natural Gas Supply' December 2001 - Permitting and Well Development - Before a natural gas well actually begins producing, there are several time consuming procedures and development activities that must take place. In order to begin drilling, exploration activities must take place to pinpoint the location of natural gas reserves. Once a suitable field has been located, production companies must receive the required approval from the landowner (which in many cases is the government) to install drilling equipment and begin to drill the well. The Bureau of Land Management is responsible for issuing permits for onshore development, and the Minerals Management Service is responsible for offshore development areas. Once drilling is completed, extraction and field processing equipment must be set up, as well as gathering systems. In all, the between the location of natural gas deposits and the beginning of production can range from as little as a few months to as much as ten years.
Weather and Delivery Disruptions - Although unrelated to natural gas prices or demand increases and decreases, weather patterns and anomalies can have a significant impact on natural gas production. For example, hurricanes can have an impact on the offshore production of natural gas, as safety measures require the temporary shut down of offshore drilling and production platforms. In addition, while the safety record of the natural gas industry is extremely good, malfunctions and accidents may occur from time to time that disrupt the delivery of natural gas. For example, a compressor malfunction in a large pipeline serving a major hub could temporarily disrupt the flow of natural gas through that important market center. While the effects of weather and delivery disruptions are most often of short duration, they can still have an effect on the expeditious production of natural gas.Inclement Weather Can
Disrupt Offshore OperationsSource: NGSA
In addition to the short term impediments to increasing natural gas supply, there exist other more general barriers to the increased supply of natural gas in the United States. These include:
- Land Access - The U.S. government owns more than 29 percent of all the land in the country, and an estimated 40 percent of undiscovered natural gas exists on this land. In several areas, the government has restricted access to federal lands. 59 percent of undiscovered gas resources are on federal lands and offshore waters. Outside of the western Gulf of Mexico, production companies are prohibited access to virtually all federal lands offshore the Lower 48 states. About 9 percent of resource-bearing land in the Rockies is also off limits, and access to another 32 percent is significantly restricted. The National Petroleum Council in 1999 estimated that 213 Tcf of natural gas exists in areas under federal access restrictions. This restriction is the result of presidential and congressional leasing moratoria, and affects the amount of natural gas resources that may be extracted to increase supply.
- Pipeline Infrastructure - The ability to transport natural gas from producing regions to consumption regions also affects the availability of supplies to the marketplace. The interstate and intrastate pipeline infrastructure can only transport so much natural gas at any one time, and in essence provides a 'ceiling' for the amount of natural gas that can reach the market. Although the current pipeline infrastructure is significant, with the EIA estimating daily delivery capacity of the pipeline grid to be 119 Bcf. However, natural gas pipeline companies must continue to continually expand the pipeline infrastructure in order to meet growing demand. To learn more about the natural gas pipeline infrastructure in the United States, click here.
- The Financial Environment - Exploring for and producing natural gas is a very capital intensive endeavor. In fact, the National Petroleum Council estimated in 1999 that production companies will have to invest $1.44 trillion in capital between 1999 and 2015 in order to keep pace with demand growth. This puts significant pressures on production companies, particularly small, privately owned firms, to raise the capital necessary to increase production. While efficient and transparent financial markets in the U.S. do offer options for raising capital effectively, the rate at which production companies may do so can serve as a limiting factor in the increasing availability of supplies reaching the market.
No comments:
Post a Comment