HEROLD FIRM FORESEES $3.15/MCF AS 1995 U.S. WELLHEAD GAS PRICE

U.S. wellhead gas prices will recover to an average $3.15/Mcf in 1995 from a 12 year low of $1.60/Mcf this year, predicts John S. Herold Inc., Greenwich, Conn.

Increasing demand will cause U.S. gas prices to begin firming in 1992, with more meaningful escalation in 1993-95. Demand on U.S. markets will be sparked by:

• Gas fired cogeneration and cofiring projects.

• Gas as a cheap alternative to other fuels and as a cleaner burning alternative to less environmentally sound fuels.

• Consumption encouraged by Clean Air Act amendments of 1990.

• Compressed natural gas as a fuel for vehicles and bus fleets.

AVERAGE PRICES

Herold's annual gas price report shows the U.S. survey group in 1990 received a weighted average wellhead price of $1.76/Mcfd, 18% less than in 1986 and well below the peak average price of $3.04/Mcf in 1984. The.Energy Information Administration's nationwide wellhead price in 1990 averaged $1.72/Mcf.

Gas produced by Herold's group of U.S. gas transmission companies in 1990 averaged $1.96/Mcf, the highest weighted peer group average in the survey.

Second were diversified companies, with a weighted 1990 average gas price of $1.80/Mcf.

Herold derived information for its survey from annual reports and Form 10-K filings with the Securities Exchange Commission during 1986-90 by 137 U.S. gas producers. The survey looks forward through 1995 and relates its findings to historical gas markets dating back to 1973.

This year Herold also studied performances of 59 companies producing gas in Canada.

Herold's survey gives little support to assertions this year that major companies are forcing down wellhead gas prices by dumping gas at less than finding and production costs. Major companies surveyed were more likely to sell gas under long term contracts calling for higher prices than spot markets. Herold says major company wellhead prices in 1990 averaged $1.76/Mcf, compared with $1.73/Mcf for independent producers.

Among companies surveyed with gas making up more than 75% of 1990 production, the five achieving highest average U.S. gas prices were Mitchell Energy & Development Corp., Woodlands, Tex., $2.86/Mcf; Ashland Oil Inc., Ashland, Ky., $2.67/Mcf; Resource America Inc., Philadelphia, $2.42/Mcf; Southwestern Energy Co., Fayetteville, Ark., $2.33/Mcf; and Consolidated Natural Gas Co., Pittsburgh, $2.26/Mcf.

Companies with a production mix of more than 75% gas that received the lowest prices during 1990 were Dorchester Hugoton Ltd., Dallas, 69/Mcf; Mesa Royalty Trust, Amarillo, Tex., $1.35/Mcf; Burlington Resources Inc., Seattle, Wash., $1.46/Mcf; Helmerich & Payne Inc., Tulsa, $1.48/Mcf; and Oneok Inc., Tulsa, $1.49/Mcf.

In terms of energy equivalency, Herold says U.S. gas prices have become uncoupled from oil prices, with a 1991 average 13:1 oil price to gas price ratio.

By 1995, Herold predicts, that ratio will rise to 9:1.

THE CANADIAN SCENE

In Canada, 1990 gas prices averaged 27% less than the average in 1986.

For the remainder of 1991, Canadian natural gas prices ' hampered by surplus productive capacity, will remain far below U.S. prices, Herold says.

Moreover, recovery of wellhead prices for Canadian gas is likely to be a slower process than in the U.S.

"But increased export volumes provide a ray of sunshine longer term for Canadian gas producers," Herold said.

Copyright 1991 Oil & Gas Journal. All Rights Reserved.