The National Petroleum Council expects $1.5 trillion (in 1998 dollars) will be required to develop the 9 trillion cubic feet of additional annual natural gas production that the NPC and other research groups expect will be consumed by the U.S. in 2015. The figure includes $700 billion for operating expenses. The NPC's natural gas committee made the forecast, based on a year-long study; the NPC is forwarding the report to Energy Secretary Bill Richardson. The money will need to come from the industry and from research and development grants, according to Texaco Inc. chairman Peter I. Bijur, who led the NPC natural gas committee. It will need to include a significant investment strategy for the deepwater Gulf of Mexico, he adds. "That will be extremely difficult without appropriate incentives, such as investment tax credits and a way to encourage the building of more heavy oil and gas equipment," Bijur says. The forecast also recommends that availability of skilled E&P and oilfield service employees be addressed. "Approximately 500,000 jobs have been eliminated from the industry since the early 1980s, with more than 40,000 job cuts occurring in the producing sector alone in the past year," the NPC committee report notes. "Simultaneous reduction in industry hiring rates in the last 20 years has resulted in a disproportionate percentage of the work force reaching retirement age in the next decade-an average of 40% in a sampling of major producers. Furthermore, the next generation of workers is not choosing to enter the industry...." The report says that the U.S. drilling fleet will need to expand dramatically to drill the wells necessary during the next decade to produce additional gas. It suggests that the total number of oil and gas wells drilled per year, including dry holes, will have to double from approximately 24,000 in 1998 to more than 48,000 by 2015. Even considering anticipated improvements in drilling efficiency, the study results anticipate that approximately 2,300 active rigs (more than 2,100 onshore and 180 offshore) would be needed to reach this drilling level. "This represents an 80% increase over the 1,250 average active rig count estimated for 1999," the report says. The committee expects rig availability to be a challenge. If the 5% annual historical attrition rate continues, most of today's 1,700 onshore rigs will be retired by 2015 and almost 1,900 replacement units will need to be built, according to Travis D. Stice, a regional engineer for corporate operations at Burlington Resources Inc. in Houston. He outlined the report's supply findings. Seventy-two additional rigs (10 deepwater units, 32 platform rigs and 30 jackups and barges) will be needed offshore at a higher average cost per rig than onshore units, he told the council. "The amount of predicted expansion for both sectors should sound an alarm, since drilling contractors and rig manufacturers currently are not in a position to meet this projected demand," Stice says. Of the $781 billion of capital investment that the committee believes will be needed to develop additional domestic gas resources by 2015, it expects approximately $658 billion to be spent on actual supply development and about $123 billion to expand transmission, storage and distribution systems. The report says that this equates to an average increase in capital outlays from $34 billion per year between 19990 and 1998 to $46 billion between 1999 and 2015. It expects many of the outlays to involve higher risk ventures, such as large deepwater projects or pipelines to new frontiers, that easily could exceed $1 billion each in costs. While reinvested cash flow should provide much of this capital, the committee believes that outside investment also will be needed. "This may prove difficult, given the industry's problems in providing adequate returns because of periodic drops in oil and gas prices," Stice told the NPC. The situation is not resolving itself. At press time, the Gas Research Institute announced that its latest forecast for U.S. gas demand in 2015 is 32.7 Tcf, up from 31 Tcf a year ago. -Nick Snow