The fundamentals of natural gas exploration and production are changing as producers adopt just-in-time development practices to reduce risk and quickly monetize gas reserves, the Gas Research Institute reports in a new study. These changes could pose supply reliability issues and increase the risk of price volatility, according to the 2000 edition of the "Baseline Projection of U.S. Energy Supply and Demand to 2015." The analysis projects a robust natural gas demand growth of 2.6% annually to 32.68 trillion cubic feet in 2015 from 1998's 21.2 Tcf. The gas share of total U.S. energy consumption will increase from 23% in 1998 to more than 28% by 2015, the report said. Increased demand for gas-fired electric generation will account for 44%, or 5.07 Tcf, of the projected gas demand. U.S. gas supply increasingly will rely on production from the Gulf of Mexico deepwater and increased Canadian imports. The study projects gas production from offshore Gulf of Mexico wells at more than 8 Tcf by 2015 compared with about 5 Tcf in 1998. The Gulf will account for the largest single share, or 29% of incremental gas supply, from 1998 to 2015. Imports, predominantly through pipelines from Canada but also including liquefied natural gas, accounted for just under 16% of total U.S. gas supply in 1998. The GRI predicts an increase in imports from 3.6 Tcf in 1998 to 4.6 Tcf by 2005, when they will account for 17% of the total U.S. gas supply. GRI expects the growth in gas imports to slow after 2005, reaching 4.9 Tcf by 2010 and leveling off. Producers are moving to just-in-time production methods through use of less behind-the-pipe reserves or lower reserve to production ratios, accelerated depletion of the fields and reduction of the time required from gas discovery to gas production, according to the report. As a result, producers can meet growing demand without depending upon large, unproduced inventory cushions as was typical in the days of the gas bubble. Carol Freedenthal, principal with the Houston-based Jofree Energy Consulting, confirmed that oil and gas companies have changed their operating practices in order to collect the return on their investments as fast as possible, especially when prices are strong. "It's just good business practice. Money is expensive compared to the old days when money was cheap. That's the right way to go," he said. He questioned whether gas demand would rise as fast as the GRI has projected. "If the market calls for 30 Tcf, then the supply will come up, but the necessity of having the gas first depends upon the demand." The study expects real oil prices to remain flat while electricity prices decline. Gas prices are anticipated to remain relatively high in 2000 because of low drilling levels, resulting from the 1998 oil price collapse. "As a result of the tight supply condition in the near-term, gas prices could spike significantly in response to extreme weather conditions. However, the higher oil and gas prices in 1999 and 2000 will have the positive result of accelerating drilling activity," said Paul D. Holtberg, group manager of the GRI Baseline Center. In real 1998 dollar terms, the price for gas delivered to pipeline, including gathering charges, is projected to oscillate with peaks in 2007 and 2011 and valleys in 2004 and 2009. "At the extreme, prices in real 1998 dollars range from $1.71 per million Btu at the low in 2009 to a peak of $2.52 per MMBtu in 2011. In nominal dollars, the actual price paid for gas in the year purchased, Lower 48 gas prices are projected to increase from $1.95 per MMBtu in 1998 to $3.05 per MMBtu by 2015. Nominal prices are projected to spike to as high as $3.47 and fall as low as $1.95 per MMBtu over the project," the report said. -Paula Dittrick