By ANN DE ROUFFIGNAC
AUSTIN, Texas, Oct. 12, 2000Within 5 years, power generation will overtake residential and industrial sectors as the primary consumer of gas, predicts David Arledge, chairman and CEO of Houston-based Coastal Corp., a major natural gas producer.
“Convergence of gas and power is not a theory,” he said, speaking at a conference here. “It results from the way electricity is produced mostly from gas.”
He said the gas industry must also change how it responds to demand for its product.
“Gas must respond quickly to power demand. It is a changed end use market,” Arledge said.
But electricity deregulation is experiencing a bumpier road than natural gas deregulation. Unlike conditions when the natural gas industry was deregulated, electricity deregulation could be slowed by the short supply of electric generating capacity and dislocations caused by price spikes, Arledge said.
“When gas was deregulated, there was excess supply to cushion any market dislocations,” Arledge said, speaking at a conference here. “But there is no electricity bubble to cushion the impact of any dislocations. Citizens consider electricity a fundamental right.”
When enough capacity is built, deregulation will progress further, he said.
Meanwhile, demand for power is pushed up by the new economy and the use of personal computers. And that demand is served by the power plant of choice, gas-fired generation, he says.
The problem facing the gas industry is how to keep up with this demand.
Coastal and the industry are predicting that 30 tcf of gas will be demanded in the US by 2010. That means today’s 22 tcf consumption of gas will increase at a rate of 2.5%/year.
“Reaching 30 tcf/year won’t be easy,” he said. “The pipeline and storage industry must invest $34 billion to maintain and expand gas storage and transmission.”
Rig count boost
On the exploration and production side, a natural gas price exceeding $5/Mcf is good news for gas companies but a concern to power plant owners. But Arledge said that price is getting the gas rig count up to 833 rigs and it must stay there a period of time to get any kind of production increase.
“It takes 12-18 months for production to reach the market after drilling,” he said. Arledge predicted the price will settle in the $2.50-$3.00 range.
Where will the new gas come from to satisfy the demand coming from electric power industry?
Increasingly from frontier areas such as the deepwater, coal seam gas, the Nova Scotia shelf, southern Northwest Territories, and LNG imports, he said. Arledge also noted the huge reserves on the North Slope of Alaska could bring relief.
But there may a new source of gas not on many radar screens, he said.
Arledge predicted next big area for natural gas will be from deep tight sands in wells located on the shelf in the Gulf of Mexico. These are existing older fields that could provide new sources of gas when new drilling completion technologies make it commercially feasible to produce them.
Arledge said he is not worried the gas industry will be able to produce enough supply to satisfy the growth in demand for electricity to power the new economy.
“The digital economy is too big an opportunity to lose,” he said. “We will do it.”