The natural gas industry could find itself investing $500 billion to ensure the supply and infrastructure needed to meet an anticipated 30 trillion cubic foot market by 2010, according to "North American Natural Gas Trends 2000." Arthur Andersen & Co. and Cambridge Energy Research Associates (CERA) released the report in Houston recently. "The industry faces a decade of unprecedented growth. This growth, fueled in large part by power generation, will require a major increase in capital investment," said Everett Gibbs, Arthur Andersen managing director of natural gas industry services. "Attracting this capital will be an ongoing challenge, particularly after the marginal financial performance of the upstream through much of the 1990s." He indicated that the growth opportunities bring unprecedented risks because capital providers will be putting money into a volatile and unpredictable marketplace. "Unfortunately, it will be very difficult to time this investment to perfectly meet the market environment-with the likely result being ongoing boom/bust cycles. The health of the upstream industry will be largely determined by its ability to work through these cycles," Gibbs said. The discovery of new gas reserves will fall primarily to the very large independents, CERA managing director Tom Robinson predicted. These independents include Burlington Resources Inc., Union Pacific Resources Group, Apache Corp. and Anadarko Petroleum Corp., he said. "To meet the kind of supply growth described, we obviously will require more of those types of companies emerging, and those companies themselves becoming larger," Robinson said. "The 1990s was very much about rationalization in the upstream. We think the next decade needs to be about growth, but importantly growth in profits." The expanding gas market means the next decade will require the discovery and connection of 300 trillion cubic feet of gas reserves in North America, the development of major new supply frontiers and the infrastructure to meet volatile demand patterns from a growing power sector, the report said. The Gulf of Mexico deepwater represents a major new gas supply area. Despite sharp production declines on the Gulf Shelf, new supplies from the deepwater have the potential to grow overall U.S. supply capability. Emerging frontier sources of gas include the development and planned expansion of Atlantic Canadian gas and major new discoveries developed in the southern part of the Northwest Territories. In addition to spiraling gas demand, a couple of other forces will define and shape the industry, said Robinson. "First, the structure of the industry will be altered by an ongoing wave of consolidation-particularly in energy distribution; and second, the revolution in information technology and electronic-commerce will alter the way we use energy and ensure reliability." The push for consolidation will continue among upstream companies and among gas and power midstream players. Increasingly, the consolidation emphasis will shift to distribution as more multistate and multiregional distribution entities emerge, according to the report. "The models and rationale for consolidation of the industry are different and diverse. Yet one theme stands clear: consolidation is leading to a set of much larger companies with $15 billion to $30 billion in assets," Robinson said. -Paula Dittrick