Why natural gas prices are rising
Offshore, Gulf of Mexico
Soaring natural gas prices at a time of excess supplies seem contradictory if not actually criminal - until you log a couple of days perched on an offshore production platform swaying in 365-foot-deep water 130 miles out in the Gulf of Mexico.Skip to next paragraph
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Consider ''West Cameron 639,'' a $10 million tower of steel and high technology put to work in 1973 by the Sun Company of Pennsylvania, the 10th largest oil company in the United States. Seismic surveys in the '60s convinced Sun it was worth spending $15.5 million to purchase drilling rights from the federal government for the 639 tract. Between 1973 and 1976, Sun spent another $ 28 million to drill 18 wells. These 10,000-foot strings of steel pipe reach down from the platform like immense tree roots, gathering natural gas from deep reservoirs up to two miles away in all directions.
By the time natural gas started flowing from 639 in 1976, Sun had spent $53.3 million before having any product to sell.
West Cameron 639 went into production at a good time for US consumers. When the cold 1976 winter closed in, demand began outdistancing natural gas supplies. So 639 climbed quickly to a steady production rate of over 90 million cubic feet per day, enough to supply over 200,000 homes.
Six years later, the situation has changed dramatically.
Today, instead of pumping 90 million cubic feet per day, 639 is delivering just 16 million cubic feet per day. Due to dwindling underground reserves, 639's maximum potential production has dropped to 65 million cubic feet. But 639 can deliver only a fraction of this potential because, with US demand driven down by switching to other fuels and the recession, the pipeline company purchasing the gas will accept only 16 million.
John Query, one of the two Sun senior production foremen who run 639, explains that the problem with a 16 million production ceiling is that ''our expenses are the same whether we're producing 16 million cubic feet a day or five times that much.'' The result at the national level: When demand drops, cost-per-cubic-foot of gas must rise to cover the costs of operating and upgrading the massive network of wells and pipelines needed to deliver natural gas. Allowing this network to deteriorate during the current recession would virtually guarantee supply shortages when economic recovery arrives.
Mr. Query says he's doing all he can to trim expenses. This includes closely monitoring the supplies on his platform to eliminate any costly extra helicopter flights for rushing parts out here, ''a very long way from the corner store.''
But cost cutting on operations can't make up for the fact that the Sun-operated onshore facility, which was built to gather 1.2 billion cubic feet of natural gas per day from 42 offshore platforms, today is limited to 700 million cubic feet. One effect of such a drastic cutback in deliveries is that 16 giant offshore drilling rigs sit ''stacked'' or idled in Sabine Pass, a Texas port that services many of the offshore platforms.
Bobby Wilburn, who operates a Teledyne offshore drilling rig, says four of his company's 11 rigs are stacked despite being available at less than half last year's average cost of $40,000 per day.