OVERVIEW

While the shallow-water Gulf of Mexico has gone over a cliff due to structural declines combined with massive losses from Katrina and other hurricanes over the past two years, a rivalry has developed. The greater Gulf Coast region (including Fort Worth Basin) is experiencing faster-than-expected growth of non-conventional supply, led by Barnett Shale and Bossier Sands, but meanwhile the specter of significantly growing LNG imports creates large-scale uncertainty to the region’s future supply mix. The Gulf of Mexico historically has produced more gas than any other U.S. region, exporting on average more than over 15 BCF/D to the rest of the country. The Gulf Coast also offers more pipeline capacity (much of it under-utilized due to declining production) and liquidity than any other region in North America. Yet without non-conventional gas and LNG, overall Gulf Coast gas supply would be in precipitous decline. Instead, the emerging renaissance of local production driven by non-conventional supply, together with large LNG import capacity expansion, will dramatically alter the region’s complexion. The majority of future incremental LNG imports will be in the Gulf Coast and Elba Island in the Southeast. Since 2002 the region’s supply swings have included the Fort Worth Basin (home of Barnett Shale) increasing over 1.0 BCF/D, shallow water GOM plunging over 3.0 BCF/D, but GOM and Elba LNG imports more than have doubling. Looking ahead, the region’s gas balances remain heavily dependent on the growth of both non-conventional production and LNG imports. Gulf of Mexico Production by Area 2005 Average in MMCF/D
^Top
CONTENTS
A New Gas Production Forecast Similar to the Rockies study, “The Outlook for Gulf of Mexico Supply and Pricing” will analyze and forecast gas production by year for the listed individual basins and regions through 2015. However, unlike other consulting studies, the PIRA/LCI study’s “bottom-up” vintage models will deal effectively with the wide-ranging variety of specific plays within those basins. Using LCI’s proprietary models, the study will forecast gas output year-by-year and field-by-field by age of wells for fields of special interest.  By doing so, future gas production scenarios will incorporate explicit year-by-year type curve analysis that reflects the dissimilar well characteristics
and prospects of those key fields, thereby giving the region’s current and future players the type of comprehensive analysis they require. In the hot Fort Worth Basin, the vintage modeling will single out the Barnett Shale. Vintage models will be employed for other key plays in the East Texas Basin (Bossier Sands and Cotton Valley), in the Texas Gulf Coast Basin (Wilcox, Yeuga, Olmos, Edwards, Vicksburg and Lobo), in federal and state waters (Texas, Louisiana and Alabama), in the Louisiana Gulf Coast Basin (North and South Associated and Non-Associated), as well
as CBM versus conventional plays in the Black Warrior Basin. Key plays in the Midcontinent (Arkoma and Anadarko) and Permian Basin will also be analyzed.
^Top
A New Assessment of LNG Terminal Development and Production Constraints A critically important aspect of the GOM study will be an assessment of the timing and impact of specific LNG terminals and their utilization based on global upstream supply. These LNG issues must be viewed alongside an equally comprehensive analysis of constraints to production growth such as drilling, gathering, gas processing and inter- and intrastate pipeline issues. The study will incorporate an updated and in-depth analysis of all such issues. Onshore drilling continues to grow despite the challenges and ongoing difficulties to attract equipment and skilled crews to the region. Texas is leading the latest advance, as the state is a hotbed for drilling activity, especially within the Fort Worth Basin. Activity in onshore Louisiana and in Oklahoma is also on a strong upswing. Alabama and Mississippi growth, however, remains relatively tepid, as has been the case since coalbed methane from the Black Warrior Basin peaked in 2004.
^Top
A New Assessment of Pipeline Prospects Different gas supply scenarios raise the prospect of renewed pipeline-capacity constrains and, thus, potentially negative consequences on regional basis at key pricing points. The study will undertake an in-depth infrastructure assessment focused on the timing and impact of specific
pipeline projects (a pivotal part of our regional price evaluations). We will identify potential constraints and the anticipated locations of new pipeline capacity. Indeed, more pipeline capacity is needed, and that has prompted a wave of proposals. As of this writing, at least four major pipelines have been proposed to take supply (mainly new non-conventional such as Barnett Shale) from Texas further east. These include the Continental Connector, Midcontinent Express, Midcontinent Crossing and the
Texas-Mississippi pipeline. Numerous pipelines have also been proposed for LNG projects such as the Louisiana Pipeline Project, North Texas Expansion, and the Cameron Pipeline, to name just a few. In addition other projects such as the Southeast Supply Header and Cyprus are slated to move supply into the fastest growing end-use market — Florida. Looking forward, understanding which pipeline projects are most likely to be built, and when, will be an essential part of the Gulf of Mexico study. Potential constraints and likely locations of new pipeline capacity will be identified and proposed projects will be evaluated.
^Top
A New Assessment of Regional Basis Regional prices in the Gulf of Mexico will depend heavily on when and where new capacity is added vis-à-vis the size and timing of new LNG terminal capacity as well as future production dynamics and local demand. Our analysis will take a look at how seasonal swings in LNG imports (high summer / low winter) have the potential to alter the region’s supply mix. By doing so, the study will highlight similar infrastructure issues to those addressed in the Rockies study and give subscribers new insights into how these factors will affect future Henry Hub pricing and basis. Based on the findings of this study, regional prices and basis differentials will be updated through 2015 for the Gulf of Mexico (Henry Hub), Texas (Houston Ship Channel), southwest Louisiana (TETCO W. LA, NGPL LA, Trunkline W. LA), Permian (Waha), Midcontinent (PEPL TX-OK), Southeast (FGT Zone 3), Midwest (Chicago) and the Northeast (Transco NY/Tetco M3). In sum, the study will examine the driving forces behind the future pace of LNG terminal development and local onshore supply dynamics together with such issues as offshore GOM shallow-water and deepwater production, the impact of supply growth from the Rockies, pipeline assets, new infrastructure investments and regional gas prices. By gaining new insights into these issues, subscribers will be able to make more timely and informed decisions related to the future financial performance of Gulf of Mexico regional U.S. gas assets, including trading and marketing activities, basis management, firm capacity commitments, acquisitions, expansions, gas processing and electric power projects.
^Top
WHO WILL BENEFIT FROM THE CHANGING FACE OF NORTH AMERICAN SUPPLY The stakes are high when it comes to making decisions regarding future North American gas balances and basis pricing. Inevitably, market participants will end up on either side of multi-million-dollar gains or losses. THE CHANGING FACE OF NORTH AMERICAN GAS SUPPLY helps market participants keep ahead of the competition through a better understanding of the future interplay between regional gas balances, related infrastructure issues, and regional gas pricing. Those market participants should include:
Gas Producers know the importance of maintaining an in-depth knowledge and sensitivity to prospective regional shifts in North American gas supply in the process of developing E&P strategies with emphasis on maximizing returns on assets. The studies will help producers identify and evaluate the risks of future pipeline-capacity constraints and their impact on regional pricing.  Global LNG Suppliers and Marketers need to keep ahead of regional supply/demand dynamics involving potential transportation constraints and thus affecting marketing strategies to maximize exporter netbacks. The studies also will assess the strengths and weaknesses of competing LNG projects. Pipeline Companies that effectively anticipate constraints and surpluses in pipeline corridors will have a strategic advantage when valuing existing assets, targeting potential acquisitions and planning expansions. The studies will help clarify the competitive challenges and opportunities facing those pipelines. Local Distribution Companies face difficult choices regarding the purchase of new supplies and/or the renewal of existing supply arrangements. The studies will assist them to conclude optimal terms under which supply can be contracted given the dynamics of regional competitive forces. Gas and Power Marketers need timely insights into how changes in regional gas supply and costs will impact the value of power marketers’ portfolios as well as marketing strategies and trading desk risks. Electric Generators and Other End-Users constantly must consider how changing regional gas supply dynamics will influence pipeline service choices, transportation and siting options. The studies will make end-users better equipped to adapt to supply shifts, rather than respond to crises, and help new project developers make more effective evaluations of fuel supply options and project viability. Financial Institutions must make sound evaluations of how changing market conditions will affect the economics and financing of new drilling, gathering and pipeline ventures.
^Top
DATA SOURCES Gas supply and demand data for “The Changing Face of Gas Supply” come from U.S. federal and state agencies, as well as agencies in Canada and Mexico. Transportation data generally comes from LCI’s Database Service, and gas production models reflect proprietary data developed by LCI.
^Top
WHAT DO STUDY SUBSCRIBERS RECEIVE? For each regional study purchased, subscribers will obtain these valuable services (in order):
WORKSHOP. PIRA/LCI will host a workshop to discuss the preliminary findings of each regional analysis. During and after each workshop, subscribers are encouraged to make suggestions concerning the content and findings. Three (3) participants from each Client organization will be invited to the workshop. Clients ordering the study after the workshop would receive a CD-ROM version of the presentation material. ONLINE PRESENTATION. About a month prior to the release of the final report, PIRA will host an online conference call (via WebEx) to discuss the final conclusions and findings of each regional study, including production forecasts and associated impacts on pipeline transportation and capacity, LNG demand, and regional flows and basis. REPORT. Clients receive 3 copies of the final report, which will spell out the findings of the regional market analysis, recap the workshop’s content, and discuss key uncertainties that impact the major findings. The reports link the regional forecasts and alternative cases to PIRA’s overall North American gas market Reference Case. DATABASE. Clients receive 3 copies of a CD that will provide historical and forecast region-specific supply/demand and basis point pricing data through 2015. Where appropriate, gas production will be analyzed and forecast down to individual field levels along with volume flows on specific pipelines. All data are accessible on Excel spreadsheets.
^Top
FEES AND OPTIONS “The Outlook for Gulf of Mexico Supply and pricing” — as well as any other study in The Changing Face of North American Gas Supply series — can be purchased on its own or in any combination of regions. Existing PIRA and LCI retainer clients receive a reduced price on all packages.  Fees for multiple regions are discounted further for all subscribers.  Click here for detailed service pricing options. Please have a sales representative contact me to discuss the studies.