Natural Gas:

The Promise & The Risk

Offshore
Offshore Technology
Technology Conference
Conference 2004
2004
Houston,
Houston, Texas
Texas
May
May 4,
4, 2004
2004
Presented
Presented By:
By:
Matthew
Matthew R.
R. Simmons
Simmons
 For Too Long Natural Gas Was
The Ugly Duckling

Natural Gas:
„ Could not be transported
„ Could explode
„ Was priced as waste
„ Was flared or stranded
„ Was considered scarce

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Gas Slowly Evolved Into
The Energy Swan
The Evolution:
„ World War II created gas highway
era
„ Post-war gas use became serious
„ LNG became commercial after 1973
oil crisis
„ Cold winters created usage bans
(1977-1978)
„ Environment bans on other fuels
refocused attention on natural gas
„ Long safety era eliminated gas fear

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 Millennium Into 21st Century:
Gas Is Belle of the Ball
„ Gas became everyone’s 1st energy choice
as 21st century dawned

„ Gas is a perfect energy source

– Cleanest fossil fuel
– Most efficient energy source
– Cheapest to create (ex-transportation)

„ Gas is 1st choice of:

– Residential & commercial for heat (keeping
warm)
– Industry for intense heat (melting and boiling)
– Power generation: most efficient way to create
kilowatts
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 All Forecasts Pointed To
Surge In Gas Use
„ NPC Study 1999: U.S. will use
100 bcf/day by 2015.
– Resource base abundant.
– Price will stay below $3 through 2015.

„ IEA World Energy Outlook 2003:

– Global gas use over next 30 years
(bcm):
™ 2000 - 2,527
™ 2010 - 3,377
™ 2020 - 4,254
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™ 2030 - 5,047 INTERNATIONAL
 The Flaws Of This Energy Dream
„ North American natural gas peaked in 1973.
„ Slow growth in 2nd demand Conventional US Gas Production
surge came from various 50

“miracle sources”. 45

Intense infill Canadian gas wells.

40
„

bcf/d
– Lady Fern / Sable Island 35

– Area-wide Gulf of Mexico leasing 30

– Bright spot technology

25

– Coal-bed methane
– Section 29 tight sand gas 20
1990 1994 1998 2002

– Deepwater gas

„ The conventional base steadily declined.

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 The Rest Of The Globe
Fell In Love With LNG
„ Three decades of error-free LNG proved the concept

„ Steady reduction in LNG

cost and rising alternate
energy costs made LNG
“commercial”.

„ A LNG explosion came

from new orders (not by
accident).

„ Stranded gas is “everywhere”.

„ “LNG costs will steadily fall.” SIMMONS & COMPANY

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 2000 Gas Shock Was North
America’s Wake Up Call

„ April 2000 : Gas prices shattered

$3 ceiling.

„ December/January 2000-2001:
$10 gas became gas crisis.

„ Drilling boom broke all records.

„ Supply barely budged.

„ “Decline rates are 30% to 50% per year!”

„ “Houston, we have a problem!” SIMMONS & COMPANY

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 Crisis For Gas Availability
Not Limited To North America
„ Many other regions have no excess deliverability.

„ Other key producing gas basins are now in

decline.
– Could 65% – 75% of current gas wells/gas fields be
in decline?
– Remaining proved reserves are deep or unusual.

„ Global gas pipeline system is extremely mature.

– North American grid is World War II vintage.
– Newest superhighway: Siberian gas to Europe.
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There Is No “Silver Natural Gas Bullet”

„ All sources of future supply need to

be explored.

„ Some will work, others might not.

„ Putting all “energy eggs” in one

basket is risky.

„ Resource availability and cost will be

more challenging than technical
hurdles. SIMMONS & COMPANY
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 Arctic Gas Is One Answer
„ More Arctic gas is urgently
needed:
– Siberia
– Norway
– Canada
– Alaska

„ Exploration risk is unknown.

„ Commercialization is a challenge:
– Ormen Lange is text book case study.
– Arctic gas is complicated to produce.
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– Arctic gas is complicated to transport. INTERNATIONAL
 LNG Is Another Answer
„ New LNG projects must all work.
„ Collectively they are a dent in
future supply.
– U.S. could use forty 7.5 million ton
terminals.
– Rest of world’s needs are far higher.

„ LNG uses 35% of wellhead gas to

create useable gas.
„ Each 7.5 million ton project needs
≈ 15 Tcf of proved gas reserves to
last 30 years (2.6 billion BOE).
„ Does the world have scores of
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 The Cost To Create Useable Gas
Is On The Rise
„ Steel and iron ore costs
have soared.

„ This might be temporary

but old costs were too low to grow steel
production.

„ What effect will this have on:

– Long distance high performance gas pipelines?
– LNG gas systems?
– Offshore deepwater and conventional platforms?
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The Role Of Compressed Natural Gas

„ This is not “The Solution” but an important

additional “Answer”.

„ “Small Is Beautiful” might be its greatest

benefit.

„ Too many LNG countries also need to

distribute some gas to regional users whose
needs are vital but small so far.

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 Future For Gas:
Everything Has To Work
„ Conventional Gas While It Lasts
„ Deep Formation Gas
„ Tainted Gas That Gets Cleaned
„ Arctic Gas
„ Deepwater Gas
„ CBM Gas
„ Coal Gasification
„ LNG
„ Compressed Natural Gas
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SIMMONS & COMPANY
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