Natural gas outlook
After reading your "Market Hotline" (OGJ, Jan. 20, 2003, p. 68), I became concerned that you were taking the EIA written projections too much at face value. If we look at the text of the Jan. 8, 2003, Short-Term Outlook issued by the EIA, we see a rather rosy picture. It notes that during 2002 natural gas production was flat to 2001 while demand fell 1.7%, and production will also stay flat in 2003 to cover the projected demand rise of 4.7%. But this is all nonsense! If one digs in and pulls the detailed tabular information, Table 8 reveals the flaw. The natural gas balance is straightforward: namely that domestic supply plus net supply imports must equal demand plus net change in storage.
There are good data on storage balances and on net imports which leaves domestic supply and demand firmly tied to each other over any given time period. Yet the EIA persists in carrying a line item termed "Balancing Item." This is nonsense. There is no balancing item; it is precisely zero at all times! Yet for 2002 the EIA carries a –1.56 tcf "Balancing Item" which at 7% of demand is a huge unaccounted-for volume.
One reasonable way to remove the balancing item is to allocate half each to supply and to demand, correct those figures, and then check the new answers against reported views of other parties. If we work from the EIA Jan. 8, 2003, table for 2002 and 2003 and the corresponding Dec. 2, 2001, table we get an ugly picture. Supply falls from 19.66 tcf in 2001 to 18.64 tcf in 2002, a decline of 5.2% while demand goes from 22.21 tcf in 2001 to 22.8 tcf in 2002, an increase of 2.7%. And since supply and demand are tied, if one feels there was a smaller demand increase, one must correspondingly have supply decline by a like amount.
Continuing in this vein for 2003, one would get supply rising to 19.35 tcf, up 3.8%, and demand increasing to 23.16 tcf, up 1.6%. Personally, I do not see demand as up this much in 2002. If demand was only up 2.0%, then supply was off 6.0%.
If supply is plunging like this, there is no way for it to increase dramatically during 2003 since the downward slope must be halted before an upward climb is possible. I think we are facing a major natural gas supply shortfall which will lead to high enough prices to permanently remove enough demand to effect a new balance and that this shortfall will persist until new supplies arrive, first as LNG and then via arctic pipelines. I have expressed the concern to the EIA that they are misleading policy makers with their text material, but I have received no response.
John Huppler
Tyler, Tex.
Taxing dividends
Your editorial in (OGJ, Jan. 27, 2003, p. 17) on taxing dividends was right on target. The tax on dividends (first taxed on earnings in the company and again by the stock owner) is an issue that has been around since before most of your readers were born. This is not a new idea by President Bush.
I was active in the "Young Democrat WWII Veterans for Eisenhower" in Oklahoma City in 1951. General (later elected two-term President) Eisenhower had a strong plank in his platform to eliminate this double tax.
Fifty-two years later, this is a hot-button issue.
Removal or lowering of this tax on dividends would cause companies to focus more on productivity, to pay more dividends, and cause stock prices to increase, in my opinion. Will Congress agree? I love your editorial closing reminder that corporations don't pay taxes; people do.
Wayne E. Swearingen
Swearingen Petroleum Management Inc.
Tulsa
