Energy Demand Creates New Opportunities and Challenges for Drilling

Abstract Growing world energy demand has created the need for more rapid addition of new hydrocarbon reserves. In North America, an increased level of drilling activity for natural gas will be required to meet this need. Increased activity offers a long sought opportunity for growth and profitability in the drilling industry. This article will review the facts and forecasts describing the opportunity and the challenges involved in taking advantage of it. The Opportunity Increasing Energy Demand Worldwide energy demand has grown substantially since the "oil boom" of the late 1970s and early 1980s. Recent energy prices imply that the excess supply capacity developed during that boom for natural gas in North America is finally gone. Consequently, development of new reserves in excess of those needed to replace production will be necessary to meet demand and increased drilling activity will be necessary to find and develop those reserves. This requirement for increased reserves, and therefore increased drilling, creates the potential for both profitability and growth in North America's drilling industry. Given the last twenty years of having to repeatedly liquidate assets and downsize its workforce to survive, this is potentially a critically important opportunity for our industry. Is this really a "landmark" opportunity or just a short-term fluctuation? If this opportunity is real, what will be required to take advantage of it? North American Gas Production A recent article by the Gas Technology Institute (GTI) presents a quantitative case for increasing demand, increasing drilling activity, and the need for continued improvements in technology to control energy costs(1). Their projection of a 50﹪ increase in US gas consumption over the next 15 years can be rationalized based on continuation of the actual 30﹪ growth in consumption over the last 15 years plus an accelerating demand for gas in "price-sensitive" markets. Forecasts by the US Energy Information Administration (EIA) are similar. Both forecasts predict increasing FIGURE 1: Annual worldwide rig count(4) (February only in 2001). demand for energy and specifically for natural gas(2). The potential to satisfy this increasing demand with domestic energy sources is limited. Increasing oil imports to the US, amidst declining US oil production, are obvious evidence of these limits. However, natural gas production has increased about 17﹪ in the US since 1983(1, 2). After a change in export regulations, gas production increased about 130﹪ in Western Canada from 1986 to 1999(3), and exports to the US from Canada increased almost 300﹪ in the same period. Consequently, forecasters anticipate continued increases in gas production in North America to meet increasing energy demand. Historical Drilling Activity Recent drilling statistics for the US and Canada lend some support to the conclusions in the previous section. Although the US rig count dipped to a record low in 1999 due to low energy prices, there has been a strong recovery in both the US and Canadian rig counts (see Figure 1)(4). Much of this drilling activity has been focused directly on developing additional gas reserves.

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