Aug. 9, 04:35 EDT U.S. firms struggle for steady flow of natural gas

Gas wells in U.S. being depleted at increasing rate

DEW, Tex. (AP) - In the dusty prairie midway between Dallas and Houston, roughnecks hired by Anadarko Petroleum Corp. work day and night to drill 3,600-metre-deep holes no wider than a saucer.

They pursue natural gas relentlessly and they're not alone - in the United States, 50 per cent more gas wells are expected to be drilled this year than in 2000.

Strong prices and stronger demand underpin much of this activity, but there is another reason: Gas wells are being depleted ever faster, pitting industry against nature in a struggle to maintain a steady flow.

''We'll need tons and tons of these to help dig our country out of the mess we're in,'' Anadarko chief executive Bob Allison said of the region in East Texas where his company is sinking about 100 wells a year.

The ''mess'' refers to the 23 per cent annual decline in U.S. base production, up significantly from 1990, when the output from existing wells shrank only 16 per cent a year.

Anadarko also reached into Canada earlier this year with a $1.68-billion takeover of Berkley Petroleum and a $208-million deal for Gulfstream Resources Canada.

''We're on a treadmill that's making us go faster and faster just to stay even,'' said Skip Horvath, president of the Natural Gas Supply Association.

Last year there were 16,000 new gas wells drilled, up nearly 60 per cent from 10,400 drilled in 1999. But output only rose about two per cent over the same period, according to estimates from the U.S. Energy Department.

The industry is on pace to add 24,000 wells by the end of the year, with only a marginal uptick expected in production.

New drilling technologies allow the industry to tap gas reserves at greater depths and from a variety of angles, contributing to the rapid depletion. And today's high prices encourage companies to use these aggressive techniques to maximize short-term profits.

With natural gas the fuel of choice for more than 90 per cent of power plants being proposed, demand is expected to grow faster than the domestic supply, with imports from Canada, Mexico and elsewhere making up the difference.

Imports have doubled since 1991 to about 10 billion cubic feet per day, while domestic production has nudged up only four per cent to 52 billion cubic feet per day over the same period.

Regions where gas was once plentiful are yielding less each year, prompting petroleum producers to push for greater access to potentially larger finds in the Rocky Mountains, the Gulf of Mexico and Alaska.

The industry has still managed to pocket huge profits in recent years, thanks to the recent runup in price, which reached $10 US per 1,000 cubic feet last winter. Even the current $3 is roughly 30 per cent higher than in the 1990s.

''Because companies are getting more for the gas they find, they can get smaller targets and still meet economic goals,'' said Mark Papa, chief executive of EOG Resources Inc., a Houston-based independent producer.

''But you've got to drill three wells ... to get the equivalent of one well found three or four years ago.''

In East Texas, Anadarko is drilling four times more wells than it would have a generation ago, said Rex Alman, the company's vice-president for domestic operations.

''I call it the Wal-Mart approach,'' Alman said. ''We don't have any big-ticket items, but we have so many itty-bitty items that when you add it up, it means something.''

Anadarko drilled more gas wells in the first six months of this year than in all of 2000.

Whether oil companies gain access to federal lands currently off-limits in Wyoming, Utah and Montana will depend on the outcome of what many expect to be a brutal land battle between industry and environmentalists.

Opponents to drilling in the Rockies are worried about noise, water pollution and the damage drilling would inflict on plant and animal populations.

''Unfortunately, surface damage is not considered a cost to the industry,'' said Travis Stills, a lawyer for the Oil and Gas Accountability Project, a watchdog group based in Durango, Colo.

Stills said energy companies must really be worried about dwindling supplies in Texas, Oklahoma, Louisiana and elsewhere - otherwise, he said, they wouldn't be so interested in remote areas of the Rockies, where expensive pipelines would need to be built.

But the Rockies have appeal because many of its deposits are much shallower than those found in more mature basins, saving producers hundreds of thousands of dollars per well, industry officials say.

''It's a hell of a lot more economical,'' said John Schiller, vice-president of operations for Ocean Energy Inc. of Houston.

The industry also believes it can meet future demand domestically by building a pipeline that will carry massive amounts of natural gas from northern Alaska to the rest of the country.

A $75-million study of the project is being financed by BP PLC, Phillips Petroleum Co. and Exxon Mobil Corp., which control nearly all of the region's 35 trillion cubic feet of gas reserves.

Anadarko and others are spending millions of their own exploring for gas in Alaska in anticipation of a pipeline.

''Unless you open up new areas, it's going to be tougher and tougher to keep the base supply flat, let alone grow it,'' said David Pursell, a researcher for Simmons and Co. International, a Houston-based investment bank that finances petroleum projects.

''Anybody who believes we need a pipeline from Alaska has to believe that we can't grow it organically in the Lower 48.''

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-- Martin Thompson (mthom1927@aol.com), August 09, 2001

Answers

I'm a firm believer that natural gas is going to soar this winter just like last so I bought shares in a natural gas company while the price of natural gas is down (comparatively, historically its still high). The shares of natural gas companies are definitely depressed at the moment. Should be a simple matter of holding them until Jan - Feb. Especially in light of the fact that the new generating plants coming on line also burn natural gas. In twenty years, I don't think there will be any fossil fuels underneath the ground in the lower 48 left. Then we can get rid of all those unsightly derricks and import ALL of our energy needs just like Japan and be completely dependent on OPEC.

-- Guy Daley (guydaley1@netzero.net), August 10, 2001.

The ultimate conclusion of fact is that the United States is domestically running out of natural gas. Worse, the energy input requrired to produce fossil fuels is increasing steadily, which substantially reduces the net energy yield from what is produced. As the "back work" ratio approaches unity, the gross consumption rate just to maintain a given level of net consumption will increase, slowly at first, and then very rapidly. Once this point is reached, the U.S. will effectively "run out" of natural gas (and later, crude oil.) And, when this happens on a worldwide scale, in a decade or two, the Fossil Fuel Age will be OVER. If alternate energy sources are not operational on the massive scale needed to supplant fossil fuels --- and at a reasonable "back work" ratio --- the "Mother" of all Energy Crises will result. The "back work" ratio, once again, is the amount of energy required to produce it. For most alternative energy technologies, with current technologies, this ratio is quite high, on the order of 50% or worse. This includes nuclear power (over the entire life cycle, paid mostly at the "back end") and solar photovoltaics (paid mostly upfront).

-- Robert Riggs (rxr.999@worldnet.att.net), August 10, 2001.