The Realities of Natural Gas

…In much of North America, despite propaganda to the contrary, exploration and production have been yielding disappointing results for a long time, and expectations about e.g. the Gulf of Mexico and imports into the U.S. by pipeline from Canada often have an air of unreality about them. In Europe a more rational tale can be deduced on the basis of what happened in Finland. With copious potential gas supplies adjacent to Finland in Russia and Norway, the decision-makers in that country chose nuclear as the best option for additional power. They understood that given the likely future demand for gas in Europe, Asia and North America, in the long-run they might have found themselves relying on imports from very distant sources


According to the International Energy Agency [IEA] of the OECD, fossil fuels will account for 90% of the world primary energy mix by 2020. Global gas demand is expected to rise by 2.5-2.7%/y (although in the U.S. this figure will be 2%/y), even though the price has started moving up rapidly. The big consuming area will likely be Asia, where it has been suggested that demand will increase by an average of 3.5%/y between 2001 and 2025. The share of gas in world energy demand could move in that period from 21% to at least 24%. An earlier estimate had the average global gas production increasing by 2.75%/y until at least 2025, and gas quickly overtaking coal in the global energy picture. This no longer sounds right, nor does an absurd forecast the IEA which envisaged the global consumption of oil in 2030 reaching 120mb/d.

World gas prices might already be on an unambiguous upward trend. In picturing world gas prices remaining flat until 2005, the IEA was clearly mistaken, but they are correct in noting that a tightening of U.S. and Canadian gas supplies is unavoidable, and this process could turn out to be very unpleasant for buyers. A wellhead price of $2.5/mBtu (in 1997 prices) for purely conventional U.S. gas in 2020 seemed offbeat to me when it was predicted at the beginning of this century, and unless the global macroeconomy greatly deteriorates, a sustainable gas price of at least $10/Mcf could be experienced before the end of this year, with occasional