U.S. Natural Gas Supplies Low, Prices Rising

WASHINGTON, DC, June 27, 2003 (ENS) - The supply of natural gas in underground storage is just two-thirds of last year's level and well below the previous five year average, while demand for gas has increased over the last decade, Secretary of Energy Spencer Abraham told the National Petroleum Council's Natural Gas Summit in Washington on Thursday.

Abraham asked the council to convene the one day event to focus on "smart uses" of natural gas energy to find ways to forestall what he said are the "periodic price spikes and market dislocations" forecast for this winter.

"If gas prices this winter are as high as some predict," Secretary Abraham told the delegates, "the average residential winter heating bill for a typical Midwest consumer is expected be $915, a 19 percent increase over last year's bill."


People who depend on natural gas may pay more for it in the months ahead. (Photo courtesy City of La Grange)
"This is not just about low reserves or supply and demand imbalances," he said. "This is about real people and the real problems they confront when gas prices soar. It's about senior citizens, living on fixed incomes, being forced to choose between skyrocketing heating bills or some other of life's necessities."

Representatives from consumer groups, industry, state and local governments, and experts in energy efficiency and conservation attended the event.

Panels discussed the current low stocks of natural gas in underground storage - caused by a combination of cold weather in the Northeast and Mid-Atlantic regions this past winter. They focused on declines in both domestic production and net imports; short term methods to conserve energy, increase storage and production; and regulatory actions that could be taken on the state and local levels.

Secretary Abraham said the agricultural industry will be hard hit by the shortages. "The situation is particularly worrisome in the fertilizer industry," he said, "where natural gas accounts for 97 percent of total energy use and less than 1 percent of it can be switched to some other energy source."

For many years, natural gas was discarded as worthless, and oil companies got rid of it by burning it off in giant flares. But today natural gas provides one-fifth of all the energy used in the United States. It supplies nearly half of all the energy used in homes - for cooking, heating, and for powering appliances.

"Natural gas demand is projected to grow 50 percent over the next 25 years," Abraham said. "Increasing our production and storage capacities is important, but we must also focus on using our natural gas resources wisely and to our own best benefit."


Technician adjusts a microturbine. These natural gas powered small engines are attached to high speed electrical generators to produce electricity and heat for businesses and industries. (Photo courtesy Capstone Turbine Corporation)
But while supplies are low, demand is rising, and prices are too. The Energy Information Administration (EIA), the independent, statistical arm of the Department of Energy, reports that natural gas prices are well above average and are not expected to ease until 2004.

"Our goal coming out of this summit is to take quick and decisive action where possible to diminish the immediate impact of lower than expected supplies of gas," Secretary Abraham said.

The secretary announced that the Energy Department is about to undertake a Natural Gas Data Collection Initiative that he said will "fundamentally improve the way EIA and our Office of Fossil Energy gather and disseminate information about the use and origin of natural gas supplies in the United States."

In May the secretary asked the National Petroleum Council to conduct a comprehensive study of natural gas in the United States during the 21st century that is to be completed later this year.

The study will address resources for capital investment, the role of technology, access to our nation's resource base, new sources of supply from Alaska and Canada, liquefied natural gas imports and the long term potential of unconventional resources such as methane gas hydrates.

In addition, Secretary Abraham announced that the Department of Energy will expand on the Natural Gas Summit's findings by chairing a series of regional natural gas conferences that will include discussions among consumers and producers.

"These regional conferences - to be held in key locations around the country - will be brainstorming sessions much like the Natural Gas Summit," Secretary Abraham said. "But they will also provide us with an opportunity to discuss, expand upon, and draw attention to the ideas and suggestions offered today. These are small steps, but necessary ones; every one of which will make some difference."


Natural gas flows through pipes as the natural pressure of the underground reservoir forces the gas through the reservoir rocks. (Photo courtesy DOE)
Today, more than 70 percent of gas produced in the continental United States comes from wells 5,000 feet deep or shallower. But as demand increases, drillers will have to probe much deeper - to 15,000 feet or more where an estimated 125 trillion cubic feet of natural gas is thought to be trapped - three miles or more beneath the Earth's surface.

The need to probe ever deeper to locate and produce the natural gas has led the Department of Energy to add three new research projects to its Deep Trek program. Deep Trek develops drilling systems tough enough to withstand the extreme conditions of deep reservoirs, yet economical enough to make the natural gas affordable to produce.

Honeywell International, of Plymouth, Minnesota, will identify and develop a suite of high temperature electronic components that can be used for instrumentation in deep gas drilling systems.

Schlumberger Technology Corporation of Houston, Texas, plans to design and commercialize a tool that can withstand high pressures and high temperatures that approach 400 degrees Fahrenheit. The tool will measure while it drills, providing direction, inclination, toolface and gamma ray measurements continuously in real time to improve drilling decisions on the rig.

Cementing Solutions, Inc., part of Watters Engineering of Houston, Texas, proposes a combined effort with Argonne National Laboratory and other industry partners to develop supercement capable of sealing the space between the drill pipe and the surrounding rock formation at high temperatures and pressures.

Industry experts estimate that repairing failed cement jobs in deep, hot wells costs the natural gas industry more than $100 million each year. Failures occur because the Portland cement systems used today cannot stand up to the extreme temperatures, pressures and corrosive gases found in deep reservoirs. The supercement will have properties required for long term durability, minimizing the potential for mechanical failures at temperatures over 350 degrees Fahrenheit.

The projects to which the Energy Department will contribute $11 million, will be managed by the Energy Department's National Energy Technology Laboratory.

At the Natural Gas Summit, Secretary Abraham called on Congress to quickly pass the Bush administration's energy bill now working its way through the legislative process.

"It is our hope that the energy bill will contain provisions that help spur domestic production of natural gas and enhance our importation facilities to boost supplies," he said, "while reducing our nation's growing over reliance on this one source of energy."