U.S. Drilling To Slump In '99 Despite Oil, Gas Demand Gains

Jan. 25, 1999
U.S. Energy Demand [15,153 bytes] Forecast and Review [431,697 bytes] OGJ Forecast of U.S. Supply and Demand [20,665 bytes] U.S. Natural Gas Supply and Demand [29,245 bytes] Crude and Products Prices [32,328 bytes] U.S. Production of Crude Oil and Lease Condensate [67,248 bytes] Supply and Demand for Crude in the U.S. [33,920 bytes] U.S. Energy Consumption and Efficiency [79,751 bytes] Crude Imports by Country of Origin [46,699 bytes] Exports of Refined Products and Crude [21,487 bytes] Imports
Robert J. Beck
Associate Managing Editor-Economics
Demand for petroleum products and natural gas in the U.S. will move up again this year, stimulated by continued economic growth, closer to normal weather, and much lower oil prices. Although the growth rate will fall below last year's level, the economy will still expand.

A worldwide excess of crude oil will continue to depress prices. But rising demand and the slowing of investments in new projects will help the market move toward a supply and demand balance later in the year.

Natural gas prices are expected to remain close to 1998 levels. Demand will increase, but gas will feel competitive pressure from the low oil prices and from other power generation fuels.

There will be continued improvement in energy consumption efficiency in the U.S. Total energy demand will increase but not as rapidly as overall economic activity.

U.S. petroleum product demand will move up 1.7% in 1999 to an average of 19.04 million b/d, a record high. Natural gas consumption will also set a record high, increasing 2.2% to 22.2 tcf.

U.S. crude oil output will continue to slide in 1999, and the decline could accelerate if prices remain low. Crude oil production slipped 2% in 1998 to average 6.32 million b/d. Oil & Gas Journal projects a 1.9% drop in crude and condensate production this year to an average 6.2 million b/d. U.S. production has been falling since 1985, except for a modest increase in 1991 related to the Persian Gulf war.

Output declined an estimated 132,000 b/d in 1998 and is expected to fall 120,000 b/d in 1999. The average decline rate over the period 1985-96 was 227,800 b/d/year.

U.S. drilling activity, as measured by the number of rotary rigs working, fell 12% in 1998 to an average 831 rigs. A record low average of 700 rigs is possible in 1999 as companies cut drilling in response to low oil prices.

Falling oil production and rising demand will result in increased petroleum imports, which will reach a record high average of 10.55 million b/d for 1999. Import dependency will be 55.4% of U.S. demand, down slightly from the record 55.6% in 1998.

Refiners will try to reduce stock levels to cut costs. That will add to the product supply stream and somewhat reduce import requirements. Continuing to operate at close to capacity throughput rates, refiners are expected to again boost capacity at existing facilities in response to the increase in product demand.

The refining capacity utilization rate will remain at an average of 95% this year. Utilization at this level makes U.S. product supply vulnerable to unforeseen refinery shutdowns.

The economy

Real gross domestic product (GDP) moved up an estimated 3.6% in 1998, compared with 3.9% for 1997. OGJ expects the economic growth rate to slip to 2.1% in 1999.

This year will be the eighth consecutive year of economic growth, following a short recession that started late in 1990. GDP fell 0.7% in 1991 and put an end to a previous string of eight consecutive years of economic growth.

This year, economic growth will be slowed by a drop in U.S. exports related to the financial and economic problems in many developing countries including the Former Soviet Union (F.S.U.). In addition, a labor shortage might revive inflation, which could slow some expansion plans and investments.

The major economic indicators are expected to post mixed results in 1999. Industrial production, a key component of both economic activity and energy demand, is projected to move up 2%, compared with 3.1% in 1998 and 5% in 1997. New car and truck sales are projected to slip to 15.3 million units in 1999 from 15.6 million last year and 15.4 million in 1997. Housing starts are forecast to slip to 1.48 million units in 1999 from 1.58 million units in 1998.

Interest rates, a major key to spending on these items, are expected to increase marginally in 1999.

Slight inflation is expected in 1999, with the consumer price index increasing at a 2.2% rate, up from only 1.6% in 1998 but lower than the 2.3% in 1997. The GDP price deflator is expected to move up 1.5% vs. 1.0% in 1998 and 1.9% in 1997. The latter index is a measure of inflation for all goods and services produced in the U.S. economy.

The unemployment rate is projected to move up to 4.8% from 4.6% in 1998. The rate was 5% in 1997 and 5.4% in 1996.

Total energy consumption

Growth in economic activity will boost total energy consumption in 1999, including consumption of petroleum and natural gas. Increased manufacturing activity and rising electric power consumption will be major factors. Falling energy costs will cause more intensive use of energy for economic activity.

Energy consumption increased an estimated 0.6% in 1998 to 91.25 quadrillion BTU (quads). Total energy demand is projected to increase 1.8% in 1999 to 92.9 quads.

Energy efficiency, measured as energy consumption per constant dollar of GDP, has been improving steadily since 1970. But during periods of low energy prices the rate of improvement slows due to the reduced financial incentive for investment to conserve energy.

In 1998 the U.S. economy consumed an estimated 12,110 BTU/$ of real GDP. This is down 39% from the 19,800 BTU/$ in 1970. Over that period real GDP increased 122.4%, while energy consumption increased only 35.9%. In 1999 energy consumption is expected to fall again to 12,080 BTU/$ of GDP.

Energy by source

Consumption levels for all primary energy sources are expected to increase in 1999.

Oil energy consumption is projected to increase 1.7% in 1999 to 37.24 quads after posting a 0.6% increase in 1998.

Petroleum's share of the energy market will be 40.1% in 1999, the same as 1998 and 1997 but up from 39.9% in 1996.

Over the past two decades oil's share of the U.S. market has gyrated with changes in oil prices. It fell from 48.7% in 1977 to 41.8% in 1985, primarily due to higher oil prices. While prices plunged in 1986 oil's market share moved up to 43.4%. Over the past 10 years competition from other fuels and environmental concerns trimmed oil's share of the energy market.

Natural gas energy consumption is expected to increase 2.2% in 1999 to 22.81 quads after a drop of 1.2% last year to 22.31 quads. Last year competition from cheap oil, nuclear power, and coal slowed consumption.

This year's energy from natural gas will be at a record high level due to increased industrial and electric utility use and closer to normal winter weather. Deregulation helped improve the efficiency of the natural gas industry and improved the fuel's competitive position. Gas nevertheless faces competition in the electric utility sector from coal, nuclear, and hydroelectric power.

The natural gas share of the energy market is expected to move up to 24.6% in 1999 from 24.4% in 1998. The share was 24.9% in 1997.

Together, petroleum and natural gas will continue to dominate the energy market. The combined market share will rise to 64.7% in 1999 from 64.5% in 1998. The combined share was 65% in 1997. The market share peak for the two fuels was 77.7% in 1972.

Increased demand for electrical power is the major reason for the future steady rise in energy consumption.

Energy from hydroelectric power dropped 6.2% in 1998 to 3.8 quads. The decline was related to reduced rainfall and snow levels in key areas of the country. Hydro energy consumption will climb 1.1% to 3.84 quads in 1999 as a result of closer to normal weather and precipitation. In the long run hydro capacity is physically limited to existing installed capacity levels. The hydro share of the energy market will slide to 4.1% in 1999 from 4.2% last year and 4.5% in 1997.

Energy from nuclear power increased 4.8% in 1998 to 7 quads. Several New England nuclear power units that had been shut down for maintenance in 1997 came back on stream. Nuclear power output is expected to increase a marginal 0.9% in 1999 to 7.06 quads due to increased utilization of capacity.

The nuclear power share of the energy market will slip to 7.6% in 1999 from 7.7% in 1998. It was 7.4% in 1997 and 8% in 1996.

Even though nuclear power capacity has peaked, experts believe there is some potential growth in nuclear power output. This is primarily due to more efficient use of existing facilities and increasing the capacity utilization rate. Shutdown of old facilities eventually will offset those gains.

The number of operable nuclear power units peaked at 112 in the summer of 1990, fell to 109 in 1992, increased to 110 in 1996, then fell to 104 units in 1998. Nuclear power capacity was 100.908 million kw in 1996. Capacity slipped to 96.643 million kw in 1998.

The capacity utilization rate moved up from 62.2% in 1989 to 77.4% in 1995. The rate slipped to 76.4% in 1996 and 71.4% in 1997 and climbed to 77.5% in 1998 as units came back on stream. This year the utilization rate is expected to be close to the 1998 level.

Coal energy consumption, mainly for power generation, increased 2.4% in 1998 to 21.53 quads. Coal consumption was constrained in 1997 by transportation problems with several major railroads. As electric power consumption rises, coal energy consumption is expected to move up this year by 2% to 21.95 quads. Coal's share of the energy market will remain at 23.6% in 1999, the same as last year but up from 23.2% in 1997 and 22.8% in 1996.

Coal consumption will continue to increase in future years along with demand for electricity. However, environmental concerns and related costs of clean air regulations could slow the increase.

Oil supply

The 6.2 million b/d of crude and condensate production projected for 1999 would be a drop of 2.771 million b/d from the recent high of 8.971 million b/d in 1985: 31% in 14 years.

Even with new technology, an increase in drilling is required to reverse this decline. But the Baker Hughes Inc. count of active rotary rigs fell throughout 1998 to average 831 for the year, down from 945 in 1997. At year-end the rig count had dropped to only 634, well below the activity level needed to stabilize production.

The modern annual record low of 717 active rigs was posted in 1992.

Output of natural gas liquids (NGL) will increase 12,000 b/d in 1999 to average 1.8 million b/d. NGL output has been rising since 1989, when it averaged only 1.546 million b/d. Increased natural gas production, deeper extraction, and rising prices have boosted output.

In recent years other hydrocarbon liquids have made a growing contribution to total production.

Since 1993 the Energy Information Administration (EIA) has included fuel ethanol and oxygenate from methyl terbiary butyl ether plants in calculations of total liquids production. As a result, production of liquids other than crude oil, condensate, and NGL moved up from 92,000 b/d in 1991 to an estimated 352,000 b/d in 1998. It will climb to 360,000 b/d this year.

OGJ projects total liquids production of 8.36 million b/d for 1999, down 1.2% from last year and 21.4% from the recent high of 10.636 million b/d in 1985.

Alaskan output fell 7.5% in 1998 to an estimated annual average of 1.2 million b/d. That followed drops of 7% in 1997 and 6.1% in 1996.

Alaskan output in 1999 is expected to slide to an average 1.15 million b/d.

Lower 48 production averaged an estimated 5.12 million b/d in 1998, compared with 5.156 million b/d in 1997 and 5.072 million b/d in 1996.

In 1998 estimated production in the major Lower-48 producing states were Texas 1.615 million b/d, down 13,000 b/d; California 915,000 b/d, down 14,000 b/d; Oklahoma 200,000 b/d, down 28,000 b/d; Wyoming 179,000 b/d, down 13,000 b/d; New Mexico 175,000 b/d, down 16,000 b/d; and Kansas 105,000 b/d, down 4,000 b/d. Louisiana's production averaged 1.405 million b/d, up 66,000 b/d as condensate from gas wells added to the liquids production rate.

With drilling suppressed by low oil prices, Lower 48 production in 1999 will slide to 5.05 million b/d. The recent high for lower 48 production was 7.157 million b/d in 1984.

Imports

U.S. imports of crude oil and petroleum products are estimated to have averaged 10.42 million b/d in 1998, a record high, up 258,000 b/d from the year before.

Imports are projected to average 10.55 million b/d in 1999.

All of the 1998 gain was in crude oil imports, which increased 4.2% to an estimated record high 8.57 million b/d. Crude imports are projected to move up in 1999 to an average 8.66 million b/d.

Product imports slipped last year to an average 1.85 million b/d from 1.936 million b/d in 1997.

Product imports have been as high as 2.295 million b/d in 1988 but fell to 1.605 million b/d in 1995 as refiners cut inventories.

Product imports are forecast to increase in 1999 to an average 1.89 million b/d.

No crude imports are expected for the Strategic Petroleum Reserve (SPR).

The SPR level was reduced significantly in 1996 and 1997 but remained constant in 1998. The last crude imports for the SPR were in June 1994.

Total SPR crude stocks have been reduced to 563 million bbl from the high of 592 million bbl in February 1996.

SPR crude sales have been used as a source of funds to pay for maintenance of facilities.

Stocks

Industry stocks were estimated at 1,060 million bbl at year-end 1998, up from 997 million at year-end 1997 and 941 million bbl at year-end 1996, when stocks approached operating minimums.

The addition to industry stocks averaged about 175,000 b/d in 1998 vs. 153,000 b/d in 1997.

Stocks increased 37,000 b/d in 1991, fell 79,000 b/d in 1992, increased 136,000 b/d in 1993 and 4,000 b/d in 1994, and fell 247,000 b/d in 1995 and 82,000 b/d in 1996.

At year-end 1998 estimated total industry stocks represented 56.6 days of U.S. supply, up from 53.5 days of supply at year-end 1997. At year-end 1996 total industry stocks represented only 51.4 days of supply, compared with year-end stock cover of 59.9 days in 1994 and a recent high of 78 days in 1981.

Year-end stocks averaged 76 days of supply in the 1960s and 67 days of supply in the 1970s and 1980s.

OGJ expects industry stocks to decline by the end of 1999 to 1,025 million bbl.

Crude stocks are expected to slip to 325 million bbl from 335 million bbl at year-end 1998. Product stocks are projected to finish 1999 at 700 million bbl, down from 725 million bbl at year-end 1998.

Refining

With utilization rates high, U.S. refining capacity increased in 1998 for the third consecutive year.

Crude oil runs to stills increased 1% to average an estimated 14.78 million b/d. Total input to stills moved up 1.3% to average 15 million b/d.

Average operable refining capacity increased to 15.788 million b/d from 15.607 million b/d in 1997.

Crude runs are projected to move up 1.3% in 1999 to average 14.97 million b/d. Total input to stills will increase to an average 15.19 million b/d. Capacity is expected to expand to an average 15.99 million b/d. With the added capacity the utilization rate will remain at 95%.

Refining margins, prices

Falling crude oil costs improved refining margins in 1998.

For the first 9 months of 1998 Gulf Coast cash operating margin as calculated by Ernst & Young Wright Killen & Co. averaged $1.36/bbl, compared with $0.96/bbl for the same period of 1997. Margins were particularly strong in the second and third quarters, averaging $1.92/bbl and $1.57/bbl.

With crude costs continuing to fall in the fourth quarter, the average refining margin for the year will be higher than the $0.83/bbl posted for 1997. Refining margins averaged $0.71/bbl for 1996 and $0.33/bbl for 1995.

The estimated average U.S. wellhead price of crude oil plummeted last year to $10.80/bbl from $17.24/bbl in 1997 and $18.46/bbl in 1996.

The wellhead crude oil price averaged $20.03/bbl in 1990 then fell to $13.19/bbl in 1994 before rising again in 1995 and 1996.

The average landed cost of crude oil imports fell to an estimated $11.70/bbl from $18.11/bbl in 1997 and $20.31/bbl in 1996.

The average pump price for unleaded gasoline dropped to $1.057/gal from $1.234/gal in 1997 and $1.231/gal in 1996. The price last year was the lowest since 1989. The refiners' wholesale price of finished motor gasoline slipped to an estimated average 53.4¢/gal in 1998 from 70¢/gal the year before. The wholesale price for motor gasoline averaged 71.3¢/gal in 1996 and 62.6¢/gal in 1995.

Total gasoline taxes at the pump averaged 39.9¢/gal in 1998, compared with 39.6¢/gal in 1997, 39.6¢/gal in 1996, 39.3¢/gal in 1995, and 37.5¢/gal in 1994.

The average wholesale price of No. 2 fuel oil fell to an estimated 39.9¢/gal in 1998 from 58.9¢/gal in 1997, 63.9¢/gal in 1996, and 51.1¢/gal in 1995.

Oil demand

Consumption will move up for all major products in 1999. OGJ projects total U.S. product demand, including exports, of 20.04 million b/d for 1999, compared with 19.725 million b/d in 1998.

Exports fell to an average 995,000 b/d in 1998 from 1.003 million b/d in 1997. Exports are expected to average 1 million b/d in 1999.

U.S. petroleum product demand increased 0.6% in 1998 to average 18.73 million b/d.

Petroleum product demand has been rising even though the amount of oil energy consumed per dollar of GDP has been falling since 1973: from 8,900 BTU/$ that year to an estimated 4,900 BTU/$ in 1998. The ratio is projected to fall to 4,800 BTU/$ in 1999.

Motor gasoline

Demand for motor gasoline is projected to move up in 1999 due to increased economic activity, growth of the vehicle fleet, an increase in the miles driven per vehicle, and a slowdown in the improvement in vehicle fuel efficiency.

Low gasoline prices will also stimulate consumption. Adjusted for inflation, current pump prices are at record lows. And it is expected that crude oil prices and gasoline prices will remain low in 1999 as inventories are reduced.

The average efficiency of the vehicle fleet, as measured by miles per gallon, improved from 1973 through 1991: from 13.4 mpg in 1973 to 21.2 mpg in 1991.

A shift in consumer preference to small trucks and sport utility vehicles temporarily slowed the trend. Average miles per gallon fell to 21.0 in 1992 and 20.6 in 1993. In subsequent years as older vehicles were replaced, vehicle efficiency again improved, albeit slowly, to an estimated 22.2 mpg in 1997.

Future fleet fuel efficiency improvements will depend upon the rate of replacement of older, less- efficient vehicles along with trends in consumer preferences. Higher auto prices tend to slow replacements.

Miles driven per vehicle has been setting records in recent years. Miles driven per vehicle, only 8,817 in 1980, was an estimated 11,575 in 1997.

OGJ projects 1999 motor gasoline demand at a record high 8.265 million b/d, compared with 8.17 million b/d last year. This will be the eighth consecutive year of increased motor gasoline demand and the seventh consecutive record high.

Prior to the recent period of record years the high for motor gasoline consumption was 7.412 million b/d in 1978. High gasoline prices then encouraged conservation and improvement in vehicle fuel efficiency. Gasoline consumption fell to 6.539 million b/d in 1983.

In recent years relatively low motor gasoline prices have also contributed to the increase in fuel consumption. Last year the estimated average pump price for unleaded motor gasoline fell to $1.057/gal from $1.234/gal in 1997 and $1.231/gal in 1996. The motor gasoline price averaged $1.127/gal for the previous 5 years, ranging from a low of $1.108/gal in 1993 to a high of $1.147/gal in 1995. These prices are well below the record high of $1.378/gal set in 1981.

Jet fuel

Demand for jet fuel slipped 2.8% last year to an estimated 1.555 million b/d, primarily due to strikes in the airline industry.

Key operating statistics showed increases in airline activity in 1998. Total revenue passenger seat-miles flown by U.S. scheduled airlines and total passenger enplanements were up from the year before. There was a slight gain in both domestic and international activity. Air freight revenue ton-miles also were up for the year.

Jet fuel consumption moved up steadily from 1.007 million b/d in 1981 to 1.522 million b/d in 1990. Demand fell in 1991 and 1992 as the economy moved into recession and the military cut consumption, averaging 1.454 million b/d in 1992.

When the economy started to expand again demand for jet fuel moved up to 1.578 million b/d in 1996 and 1.599 million b/d in 1997.

An increase in economic activity is expected to boost jet fuel demand this year to 1.595 million b/d. Both passenger miles and freight ton-miles will increase along with the expanding economy.

Distillate fuel

Demand for distillate fuel oil is projected to increase 2.9% this year to a record-high average 3.555 million b/d. This follows a 0.6% gain in demand last year to 3.455 million b/d.

The increase this year, like last year, will primarily be due to the improvement in the economy and increased transportation demand. Closer to normal winter weather should also help boost demand by increasing consumption of home heating oil.

It will be the eighth consecutive year of higher distillate demand. Demand for distillate hit its earlier peak in 1978 at 3.432 million b/d. Higher prices then led to conservation and fuel switching, and demand fell to 2.671 million b/d in 1982. In subsequent years lower oil prices and steady economic growth resulted in a steady increase in distillate demand, interrupted only by the economic recession in 1990-91.

Last year the improved level of economic activity boosted industrial, highway transport, and railroad demand for distillate. But warmer than normal winter weather early in the year reduced residential heating oil demand.

Residual fuel oil

OGJ projects that demand for residual fuel will average 865,000 b/d in 1999, compared with an estimated 845,000 b/d in 1998 and 797,000 b/d in 1997.

Falling oil prices throughout 1998 improved the competitive position of resid and was the major reason for the sharp increase in demand.

The peak year for resid consumption was 1977 at 3.071 million b/d. The sharp drop over the years was primarily due to reduction in demand in the electric utility and industrial sectors. Increased nuclear power output and price competition from coal and natural gas have led to a reduction in fuel oil demand in these sectors.

With lower prices resid is expected to be more competitive. An increase in demand is expected to come from the industrial and utility sectors along with some increase in transport demand. Closer to normal winter weather will also help demand.

A higher level of imports could result in higher demand for bunker fuels for tankers, and increased economic activity will boost transport demand. High prices for competing natural gas would also help the demand for resid.

Other petroleum products

Demand for liquid petroleum gas (LPG) and ethane is projected to move up to 2.035 million b/d from 1.995 million b/d last year. It averaged a record high 2.038 million b/d in 1997.

The recent low in LPG demand came in 1986 at 1.512 million b/d.

Demand for all of the other petroleum products as a group is projected to increase 0.6% in 1999 to 2.725 million b/d. Last year demand for all other petroleum products slipped 0.9% to 2.71 million b/d.

This miscellaneous petroleum product category will represent 14.3% of total domestic demand in 1998. Demand for other petroleum products is sensitive to changes in the economy and in particular the level of activity in the chemical and construction industries. Increases are expected in demand for asphalt and lubricants to keep pace with the steady increase in transport activity. Increases are also expected in demand for petrochemical feedstocks as the economy expands.

Natural gas

Total U.S. natural gas consumption is forecast to increase 2.2% in 1999 to 22.2 tcf. This will be a record high for U.S. natural gas consumption. The previous peak was 22.1 tcf in 1972.

Last year demand for natural gas slipped 1.1% to 21.73 tcf. Mild winter weather reduced residential demand 5.5% and commercial demand 4.3%. Industrial demand slipped 0.4% from the previous year.

These declines were partially offset by a 6.6% increase in electric utility demand. A long hot summer in the Southwest and California raised power demand for air conditioning. With a reduction in hydropower output, demand for natural gas increased.

Due to price competition, fuel oil displaced gas in some areas.

This year, with closer to normal weather, demand for natural gas will jump in the residential and commercial sectors.Residential demand is expected to move up 5.4% and commercial demand 5.1%. However, there could be increased competition from fuel oil.

Industrial demand is also expected to rise, up 1.6% this year. The increase will be primarily due to the completion of new nonutility gas-fired power generation facilities. During the 1990s industrial demand for natural gas has been bolstered by a gas use in in combined-cycle, and nonutility generating plants.

Demand for natural gas by the electric utility sector is expected to fall 1.4% in 1999. Milder, closer to normal summer weather will reduce demand. And low oil prices will increase competition from fuel oil, displacing some natural gas.

Gas use for the utility generation of electric power is expected to increase to the extent deregulation of the industry encourages replacement of old generating capacity.

Industrial demand will also rise in the near future. There is a backlog of proposed nonutility generating plants that will soon be completed.

Consumption of natural gas fell from 20.241 tcf in 1979 to 16.221 tcf in 1986 due to price increases, competition from other fuels, and regulation. Lower prices and deregulation made natural gas more competitive in subsequent years. Demand has been rising steadily since 1986.

Natural gas exports are a small portion of total gas demand. Exports are expected to remain at 185 bcf in 1999, the same as 1998. Gas exports totaled 157 bcf in 1997 and 153 bcf in 1996. Gas exports, primarily to Mexico, hit a peak of 212 bcf in 1992.

Natural gas supply

U.S. marketed gas production will increase to 20.18 tcf this year from an estimated 20.005 tcf last year and 19.895 tcf in 1997. Output in 1998 was the highest level of domestic production since 1980.

Imports have moved up sharply to fill the gap between domestic output and consumption. Imports increased 2.7% in 1998 to a total of 3.075 tcf. Imports from Canada increased 2.8% to 2.98 tcf. LNG imports from Algeria, Australia, and the United Arab Emirates moved up to 82 bcf from 78 bcf the year before. Imports from Mexico fell to 13 bcf from 17 bcf in 1997. Total imports were 13.9% of new supply and 14.2% of total consumption.

In 1999 total gas imports are expected to move up 4.1% to 3.2 tcf. Canadian imports will increase 4% to 3.1 tcf as pipeline capacity expands. LNG imports are projected at 85 bcf, and imports from Mexico at 15 bcf. Imports this year will represent 14.2% of new supply and 14.4% of total consumption.

The average wellhead price of natural gas in the U.S. dropped in 1998 to an estimated $1.75/Mcf from $2.23/Mcf in 1997 and $2.17/Mcf in 1996.

The average wellhead price was $1.55/Mcf in 1995, $1.85/Mcf in 1994, and $2.04/Mcf in 1993.

Natural gas prices were relatively steady from 1987 through 1992, with annual averages of $1.64-1.74/Mcf. Over that period imports increased rapidly, while total consumption growth was relatively slow.

The price jumped to $2.04/Mcf in 1994 as demand surged to 20.279 tcf. That was the first time demand was above 20 tcf since 1979.

Natural gas prices are expected to move up slightly in 1999, strengthened by demand growth later in the year. The average U.S. wellhead price for gas will fall in the range of $1.80-2/Mcf for 1999.

Copyright 1999 Oil & Gas Journal. All Rights Reserved.