Abstract The US Natural Gas Market has moved through some very dynamic events over the past few years. The fact that ninety-nine percent of all gas consumed in the US comes from the North American Continent plays a large part in the lack of stability in pricing of Natural Gas. The nature of the production stream feeding the demand for gas has changed drastically in the past decade. The potential demand for gas during peak usage periods of each year has changed dramatically and the maturity of the available gas development projects have all led to a greatly different market than ten years ago.
This paper will focus on the three main points of interest; first, the production supply of gas in the US and how the underlying decline rate of produced gas has changed. Second, the root cause of the recent gas price increase and resulting fall. What caused it and how likely is it to occur again. Lastly, What will it take to meet the increasing demand for natural gas into the future?
Introduction The search for and development of natural gas producing wells has become the focus of the U.S. Oil & Gas Industry over the past decade. At present, about 85% of the drilling rigs in the U.S. are classified as looking for natural gas rather than oil. This is a complete turnaround from 1987 when only about one-third of the rigs were searching for natural gas. In recent years supplies have become tighter causing substantial volatility in pricing and uncertainty in investments.
In 1998, the drilling rig count began falling from a peak of 1,032 total rigs (646 gas rigs) to a bottom of 494 total rigs (365 gas rigs) in April 1999. Reductions like this in the U.S. rig count put a strain on the ability of our industry to operate profitably without making changes. These cycles of high activity followed by declines have been the nature of our industry for decades.
In early 1999, the authors undertook the task of trying to determine the depth and time period the current "trough" in activity would encounter. Through a detailed examination of the supply side of the natural gas industry, determining changes in the producing nature of U.S. natural gas wells, we determined that there would be noticeable shortages in supply in the very near future and these should drive prices higher, spurring drilling activity and ending the down cycle. This, in fact, did occur in May 1999 when the rig count began to rise and reached historic levels in 2001.
After studying the behavior of U.S. gas production and building a predictive model for forecasting, attention was turned to monitoring changes in demand for natural gas. Correlations were built between temperature trends and storage level changes. Monitoring changes in these trends can lead to insights into the changing demand for gas in the U.S.
This paper will detail the work performed in building an understanding of U.S. gas production behavior and changes in U.S. gas demand over the past several years. We will demonstrate the ability to forecast U.S. gas production and the ability to recognize changes in trends of demand for gas very early in their life. We hope that this information can lead to a better understanding of market trends and allow the industry to recognize changes in trends and be able to anticipate changes in business environments for smoother transitions.
Supply The natural gas that supplies the United States of America comes from many sources. Production from wells in the U.S., account for about eighty-five percent of the gas supply, while imports make up the remainder. Fig. 1 is a chart depicting the contribution of each source of gas to the net supply. There are both imports and exports of natural gas. About ninety-eight percent of the gas used in the U.S. each year comes from a well on the North American Continent. Liquefied Natural Gas (LNG) is imported via tankers from several countries not in North America. However, the U.S. also exports LNG to Japan, often in quantities greater than the LNG imports.