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| Source: NGSA |
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.
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| 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.
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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.
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| Natural Gas Prices and Drilling
Rig Operation |
| Source: EIA
- 'Midterm Prospects for Natural Gas Supply'
December 2001 |
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.
- 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.
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Inclement Weather Can
Disrupt Offshore Operations |
| Source: NGSA |
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.
General Barriers to Increasing
Supply
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.
The process by which the natural gas industry increases
supplies in order to keep pace with growing demand is
a complicated one. Although the factors listed above
are important determinants of producers' ability to
meet increased demand, they by no means offer an exhaustive
list of all of the elements that come into the supply
picture. Some good resources for exploring the ability
of natural gas supplies to keep pace with rising demand
are listed below:
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