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USA ECONOMIC BACKGROUND

 

USA - As a Place To Do Business

Natural Gas Supply and Demand

The USA is the world’s largest energy producer, consumer and net importer. According to Energy Information Administration (“EIA”) (www.eia.doe.gov), as of January 2004 the USA had estimated proven natural gas reserves of 187 TCF, or 3.1% of world reserves (6th in the world). Natural gas consumption for 2004 was approximately 22.0 TCF, with gross imports of 4.1 TCF. Overall, the USA depends on natural gas for about 24% of its total primary energy requirements. Oil accounts for around 40% and coal for 23%.

From 1990 through to 2003, natural gas consumption in the USA increased by about 15%, although consumption fell about 5% during 2003 in large part as a result of high gas prices. In response to continued economic growth, natural gas demand was projected to increase by 3.7% in 2005. Natural gas is consumed in the United States mainly in the industrial (37%), electric power (23%), residential (22%), and commercial (14%) sectors.

As of 2002, the top natural-gas-producing states (in descending order) included Texas, New Mexico, Oklahoma, Wyoming, Louisiana, Colorado, Alaska, Kansas, California, and Alabama.

Natural Gas Prices

Over the past few years, natural gas wellhead prices have steadily increased from a base of around US$2.50 per thousand cubic feet (“ MCF ”) in the mid to late 1990’s to over US$14/ MCF (the present gas spot price is approximately US$6/ MCF ). These USA gas prices compare very favourably with A$2-3/ MCF (~US$2/ MCF ) currently achievable in Australia .

The reason for the gradual increase in natural gas prices, and why there continues to be upward price pressure can be attributed to:

  • Natural gas is no longer in surplus. Previously there was a bubble of oversupply which depressed prices for 10 years.
  • Economic outlook is improving and this will increase energy consumption.
  • Natural gas demand in North America is increasing at about 3 % per year whereas supply is increasing at only about 1%.
  • Production from many older gas wells is declining quite rapidly.
  • More natural gas is being used for electricity generation. Any new electricity capacity brought on line right now is generated by natural gas, rather than oil, coal, water or nuclear.
  • As the price of crude oil increases, some industries switched to natural gas. Many developed this dual fuel capability when petroleum prices increased in 2001.


USA Fiscal Terms

In the USA, mineral rights (including oil and gas rights) for any onshore resources belong to the landowner (unless sold or assigned to a third party). Therefore the first step in the oil and gas exploration process involves the acquisition of leases from the holders of mineral rights cover the prospect. Once the leases are secured, exploration operations may commence. If a discovery is made, a negotiated royalty is payable to the mineral rights holder based on revenue earned from the lease. Additional overriding royalties to other third parties are also very common as these leases change ownership over time.

Several State and local taxes are payable based on overall production volumes and net income in addition to a federal corporate tax which is levied at 35%.

In summary, the USA provides an attractive environment for international oil and gas explorers given its proven hydrocarbon potential, well established petroleum industry infrastructure, strong domestic gas market and an overall fiscal regime that compares favourably to most other oil and gas rich countries.