While natural gas discoveries in the United States continue at the slow pace of recent years, other regions of the world are experiencing an impressive expansion in use and availability of what is to them a relative newcomer on the energy scene.
As recently as 1964, Western Europe was satisfying a mere 2.3% of its total energy requirements with natural gas. (The United States recorded such a figure around the turn of the century; today's proportion is around one-third.) By 1968, the natural gas share of Western Europe's rapidly rising energy consumption had doubled, to 4.6%. According to a recent analysis by the Organization for Economic Co-operation and Development, the natural gas share of Western Europe's total energy consumption in 1975 can reasonably be estimated at between 10% and 14%.
Major gas discoveries in the Netherlands in the late 1950s and in the British sector of the North Sea in the 1960s have provided the major thrust. The Dutch Groningen field may be one of the world's largest natural gas reservoirs, with estimated reserves of up to 1.8 trillion cubic meters, or 12 billion barrels oil equivalent. There are thought to be good prospects of substantial natural gas deposits in other parts of the North Sea and in the Adriatic.
The sizable increase projected for Western European natural gas consumption is premised not only on indigenous onshore and offshore resources but on what may turn out to be a more than marginal volume of imports from a number of adjacent gas-producing areas. Among the more interesting prospects is that of piping large volumes of gas from the U.S.S.R. Austria is already receiving Soviet gas. Pipeline deliveries to West Germany and Italy will begin within three years under separate agreements signed late in the year; and France is next in line. The key to these prospects is the discovery of enormous natural gas fields in Soviet Siberia and Central Asia. (These foreign sales would accompany imports of natural gas into the Soviet Union itself from Iran, presumably on the theory that it will pay to draw on Iran for the supply of adjacent southern regions and to let the more distant Central Asian gas go to the central and western regions of the U.S.S.R. as well as into exports for European countries.)
Gas imports into Western Europe, under way for some years now, have been made feasible by the technology of liquefying natural gas (so that it occupies 1/600 of its normal volume) at or near the point of production and shipping it overseas in specially designed tankers. The first cargoes of Algerian liquefied natural gas (LNG) reached Great Britain in 1964 and France in 1965. Spain and Italy have contracted for imported LNG from Libya.
The rapid formation of an international market for natural gas is illustrated by developments elsewhere in the world. In the latter part of 1969 the Royal Dutch/Shell Group signed an agreement to deliver $1.6 billion of LNG to Japan from Brunei, on the north coast of Borneo, over a 20-year period. The gas would be carried in ships the size of 100,000 tons deadweight oil tankers. And in late 1969, LNG from Alaska's Cook Inlet began reaching Japan in what is a 15-year 50 billion cu.ft. per year (or 20,000 barrels per day oil equivalent) commitment by Phillips Petroleum and Marathon Oil Co. The Western Hemisphere's first natural gas liquefaction plant for long-term export had been dedicated at Kenai, Alaska, in August.
Seaborne LNG movements have also been stimulated by the heightened concern over U.S. natural gas supplies. An agreement signed in October between the El Paso Natural Gas Co. of Texas and Sonatrach, the Algerian state-owned oil and gas corporation, calls for importation of some 360 billion cu.ft. per year of Algerian gas (say, 140,000 barrels per day oil equivalent) to the U.S. East Coast over a period of 25 years. According to El Paso's chairman, Howard Boyd, the Algerian LNG might bear a delivered price of 50¢ per 1,000 cu.ft., which compares with a mid-1969 wholesale price of about 40¢ for domestic gas delivered in New York City, including storage costs, and substantially higher prices in New England.
A Federal Power Commission staff study cites "mounting evidence that the nation's natural gas supply is diminishing to critical levels in relation to demand," and calls "for a major new government-industry program to assure continued growth of gas service during the next decade." The analysis shows a drop in the reserves-to-production (R/P) ratio in virtually every year since World War II—from a 1946 figure of 32.5 to one of 14.6 in 1968. But at least through 1967 yearly reserve additions always exceeded annual production, though by too small a margin; in 1968, for the first time, new reserves fell below production. Given the R/P trend and average annual increases in natural gas demand of around 6%, the FPC projects a 1973 ratio of 10.2 (excluding Alaska). Moreover, according to the FPC analysis, regional gas supply deficiencies are likely if the nation-wide R/P ratio remains at or even above 10.
What can be done to sustain a proved reserve inventory sufficient to meet annual output requirements? There is no disputing the presence of vast undiscovered natural gas resources, which have been estimated by the U.S. Geological Survey at up to nine times the current proved reserve inventory of 282 trillion cu. ft. in the contiguous 48 states. There are, of course, supplemental sources: Canadian pipeline imports, tanker shipments of LNG as in the Algerian deal noted above, prospective Alaskan supplies, and—on the technological horizon—synthetic gas from coal. Among them, they may contribute appreciable portions of U.S. gas requirements by 1980. But what can be done to encourage the apparent need for additional exploratory activity in the 48 states?
The problem has caused the Federal Power Commission to consider anew the effects of its regulatory policies on finding and developing new gas reservoirs and ultimately on meeting the needs of gas consumers. The FPC regulates the wellhead price of gas that moves in interstate commerce. It has been claimed by some, including producer spokesmen, that the ceiling prices set by the commission do not offer sufficient incentives for exploration. Now that an actual pinch is thought to be imminent, such representations are receiving more attention. Producer spokesmen advocate allowing wellhead prices to rise until the amount that gas pipeline companies can sell is roughly equated with the amount they can purchase or until synthetic gas or imported gas make up the supply deficiency. Such a policy would almost surely expand exploration effort, although by how much is not known. It might also stimulate the development of synthetic gas plants and enlarged imports of LNG.
Any gas price policy, however, has to consider the complex issue of stimulating drilling for both natural gas that is associated with the discovery and development of oil and that which is discovered directly in the search for gas. Presumably, a set of new incentives would have to be cast within a framework that faces up also to oil policy issues. Between 1961 and 1967 proved reserves of nonassociated gas (natural gas in reservoirs not containing significant quantities of crude oil—it comprises by far the largest portion of all proved gas reserves) rose by 15%; by contrast, reserves of oil-associated gas (natural gas which overlies and is in contact with crude oil in the reservoir) declined by 15%. The question arises: can the lack of natural gas field price incentives alone be blamed for the arrested growth of new discoveries, when a slowdown in reserve additions seems to apply especially to oil-associated gas? Such questions require study within the broader context of a coordinated national energy policy.
The FPC will have to make decisions in the face of considerable uncertainty. It does not know how much extra gas a given price increase will elicit; it does not have firm cost figures for synthetic gas (for which a commercially proven technology does not yet exist) and for greatly expanded imports of LNG; nor does it know how much demand for gas will grow in the foreseeable future on different price assumptions. What it does know is that its decisions will be of vital importance for natural gas producers and customers and that it will be a near miracle if it succeeds in pleasing both sides.
A version of this article appeared in print in the January 1970 issue of Resources magazine.
