MORE GAS DRILLING NEEDED IN THE U.S.

The problem with the future of natural gas in the U.S. is getting from here to there. Environmental and technological trends promise growth in gas demand if prices don't rise too much. Yet if prices don't rise appreciably from their recently abysmal levels, there won't be enough gas.

"If the gas industry cannot provide adequate supplies at competitive prices," Gas Research Institute said recently, "its vision to play a growing role in energy markets will go unrealized" (OGJ, Aug. 29, p. 34). GRI said more than 75% of demand growth through 2010 will occur in industrial and power plant markets, both very sensitive to price. "To capture this growth, the gas industry must not only expand gas supply at these low prices but must also keep gas transportation and distribution charges under control."

THE CHALLENGE

Quick calculator work shows it won't be easy. Demand for gas in 2010 under GRI's base case will amount to 74.48 bcfd. If the rate of gas imports doubles between now and then, 63.48 bcfd will have to come from U.S. reserves.

Last year, the U.S. produced 48.74 bcfd of gas. To climb in equal steps to the level required in 2010, production would have to increase by 867 MMcfd each year. During the 17 years from now until then, production rising in such a pattern would total 350.9 tcf. That's how much gas the U.S. will have to replace to keep reserves from falling, as they have done in each of the past 3 years.

But it won't be enough just to keep reserves from falling. Production at the rate required to meet GRI's demand projection in 2010 against reserves of 162.4 tcf the U.S. Energy Information Administration's recent estimate for yearend 1993 implies a reserves to production ratio of only 7 years. Last year, the ratio fell to 9.1 years, low by historic standards. If 9 years can be considered a sustainable minimum, gas reserves in 2010 should be at least 208.5 tcf. The goal, then, must be to replace 350.9 tcf of production and add 46.1 tcf to reserves beyond that in the 17 years ending in 2010.

Can it be done? The implied requirement for reserves additions works out to 23.4 tcf /year. Last year, additions to U.S. gas reserves totaled 13.5 tcf. Of that, 6.3 tcf came from revisions and adjustments, which don't involve drilling and aren't sustainable. In fact, the 1993 nondrilling additions were down 2 tcf from their 1992 level in the first such drop since 1988, when most Alaskan gas reserves were excluded from the U.S. total. The decline may herald the inevitable shift back to dependence on drilling for additions to gas reserves.

MORE DRILLING

If revisions and adjustments somehow stay at last year's level, the U.S. will have to add 17 tcf/year to gas reserves from drilling to meet requirements suggested here. That's almost twice last year's level. Technology will help by improving success rates and raising volumes of reserves added per completion. But it can't do the whole job. If gas is to fulfill its popularly assigned destiny, the U.S. must put many more rigs to work than are working now. It probably will have to increase imports beyond levels assumed in this analysis. Both propositions imply significant increases in gas prices.

GRI was correct to wrap its gas market projections in warnings about price. Under existing conditions of accessible resource and technology, optimistic gas market projections are incompatible with current gas prices. Between now and the next couple of decades, technology and imports will take some of the edge off supply concerns. But prices at required levels will take some of the edge off markets as well.