January 19, 2007 / 11:29 PM / 11 years ago

Exxon says N. America gas production has peaked

NEW YORK (Reuters) - After weak prices in the 1990s due to oversupply, natural gas production in North America will probably continue to decline unless there is another big discovery, Exxon Mobil Corp.’s (XOM.N) chief executive said on Tuesday.

“Gas production has peaked in North America,” Chief Executive Lee Raymond told reporters at the Reuters Energy Summit.

Asked whether production would continue to decline even if two huge arctic gas pipeline projects were built, Raymond said, “I think that’s a fair statement, unless there’s some huge find that nobody has any idea where it would be.”

Exxon is a major player in the two multi-billion dollar pipeline projects that could bring stranded arctic gas to Canada and the lower 48 states.

The Mackenzie Valley pipeline. which includes partners Imperial Oil (IMO.TO), Shell Canada (SHC.TO), ConocoPhillips (COP.N) and the Aboriginal Pipeline Group, has been stalled due to land access issues with native groups in Canada.

At a cost of some C$7 billion (US$5.6 billion), the Mackenzie line could by 2010 bring up to 1.9 billion cubic feet per day of much needed arctic gas in Canada to fuel steadily rising demand.

The larger Alaska Highway Pipeline, also stalled as Exxon, BP (BP.L) and ConocoPhillips seek fiscal terms with the state of Alaska and regulatory clarity from the Canadian government, could tap as much as 6 bcfd of gas from the Alaska North Slope by 2012 at a cost of $15-20 billion.

“In terms of those two projects, I think Mackenzie is somewhat ahead of Alaska. Obviously both of them have to go through Canada and to that extent the Canadian government has a significant impact on the timing of both projects,” he said.

“The facts are that gas production continues to decline, and will start to decline even more rapidly. By the time we get to that period (2010-2012), we’ll need it badly.”

Stranded natural gas reserves on the Alaskan North Slope and in the Canadian arctic could total more than 40 trillion cubic feet, according to analyst estimates.

While the number of U.S. rigs drilling for natural gas has climbed about 20 percent over the last year and prices are at record highs, producers have been struggling to raise output.

Experts said easy onshore and shallow water basins have been mostly tapped or are off limits for environmental reasons, and new technologies like horizontal drilling have been draining wells in two or three years, a much faster rate than the five years or more during the 1990s.

The U.S. Energy Information Administration estimates that natural gas production will be flat this year and increase only one-half percent next year.

At the same time, demand for the cleaner burning fossil fuel is expected to grow by two percent this year and almost 2.5 percent in 2006, according to EIA, the statistical arm of the Department of Energy.

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