IPAA members seek public focus on gas development issues


By SAM FLETCHER
OGJ Online

DALLAS, Texas, Oct. 30, 2000—Growing US demand for natural gas will cause supply shortages and high prices, but it may finally focus public and political attention on producers' problems in finding and developing those resources, industry leaders said at the annual meeting of the Independent Petroleum Association of America in Dallas last week.

Regardless of who wins the upcoming presidential election, the political debate over energy will soon intensify, said J. Larry Nichols, chairman and CEO of Devon Energy Corp.

"The Clinton administration was able to have its political cake and eat it, too, by restricting industry access to public lands and not having to answer for it," he said.

But those days of too-cheap energy are fading in the face of rapidly growing market demands, said Nichols and other industry leaders at the 3-day meeting.

Natural gas prices will remain strong "for several years to come," said Chuck Watson, chairman and CEO of Dynegy Inc. "I think this is the most optimistic you can be in an industry, because the demand that is creating that (market price) is real," he said.

"Gas is going to lead the future for the independent producer. I think it's going to lead the energy segment in discussion and politics for the next 10 years," he said. "While it's important to have continued growth in the demand for energy, it's also important when and where that demand comes and what kind it is."

"The growth for natural gas will be in peaking demand, and it's going to be in the summer months, rather than the winter months. That's pretty exciting, because it allows us to use the existing infrastructure that we already have," Watson said.

Convergence of the natural gas and electric power technology will drive the US gross national product much more than any single other element over the next 5 years, Watson said.

US peak demand for electricity-fueled primarily by clean-burning natural gas-is expected to grow an average 2.5%/year through 2007. That will require new generation capacity additions of 25,000-35,000 Mw each year just to keep up with demand growth, said Watson.

"There haven't been 35,000 Mw added in any single year for 15 years," he said. Moreover, he said, the US market already is short 45,000 megawatts of peaking capacity, which also must be made up.

"This is a significant issue," Watson said. "When eastern cities with large populations start browning out and blacking out, people are going to start understanding this is a real problem."

He said, "The demand is real and it's going to be real important politically."

But the rapidly expanding use of the internet, which is driving up demand for energy, could also become a major source of conservation to dampen the energy market, said Greg Armstrong, CEO of Plains Resources Inc. and Plains All-American Inc.

To illustrate, he asked for a show of hands of how many attendees at the IPAA meeting have personal computers at work or home, and how many turn those machines off when they are not in use. "Maybe 10% turn them off," said Armstrong. "Next to your refrigerator, a computer consumes more electricity than any other appliance in your house. The average computer is on 75% of the time that it's not being used. Tomorrow if Al Gore or George W. Bush said, 'Turn it off when you're done with it,' there would be a tremendous reduction in the amount of energy consumed in this nation.

"It only takes one extra bbl over demand or one extra bbl under demand to cause the market to go up and down."

Armstrong said, "Reduced demand due to conservation is our real risk. I personally believe we are fat in terms of the amount of energy we consume."

That could result in as big a falloff of energy demand as the industry experienced in 1981 when it went into a decade-long depression. "I think we can cut back rather significantly, but it's not happening yet," said Armstrong.

Most of the elements for the current up-cycle were already occurred or were in place by Jan. 19, 1999, when benchmark US oil was trading for less than $13/bbl on the futures market, Armstrong said.

The next downturn will be triggered "when we start flooding the market with capital, when Wall Street will let into the business anyone who can spell oil-and sometimes will spot them the O and the I," Armstrong said.

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