ECONOMY KEY TO 1992 U.S. OIL, GAS DEMAND

Robert J. Beck
Economics Editor

The rate of economic recovery in the U.S. is the key variable in the outlook for the U.S. oil and gas industry in 1992.

As in recent years, international events will be crucial. Uncertainty in Russia will replace unsettled conditions in the Middle East as the major concern for world oil markets.

An end to recession in the U.S. is expected to boost petroleum product demand this year, following a decline the last 2 years. Closer to normal winter weather will also help lift demand this year.

The return of production from war-ravaged Kuwait and the possible resumption of exports from Iraq, along with expanded capacity in a number of countries, could add considerable supply to the market and push prices lower in 1992. The lower crude and product prices will help stimulate demand.

The decline in U.S. domestic crude oil production will resume this year.

The slide was halted temporarily last year as output from Alaska increased significantly following completion of major maintenance projects. Oil & Gas journal is projecting output of crude and condensate to be down 3.2% from last year.

U.S. production was up 0.4% last year at 7.385 million b/d. This followed 5 consecutive years of declining output, with an average annual decline of 323,200 b/d.

The U.S. production slide is unlikely to slow or cease. The level of rig activity hit a modern record low in 1991, averaging only 860 active rigs for the year. Low natural gas and crude oil prices and increased taxes on oil industry activity reduced investment in domestic drilling activity.

Most major U.S. oil companies are shifting their exploration and production investments outside the U.S. The rig count probably will slip even lower this year.

Lower crude oil prices and a marginal increase in natural gas prices will further erode investment in drilling activity. However, increased consumption of natural gas may lead to increased exploration and drilling activity in future years.

Declining domestic crude oil output and increased petroleum product demand will require a sharp increase in imports in 1992. Total imports will move up 6.1% and push U.S. import dependency to 47.5% of total consumption, the second highest year on record.

Political and economic conditions in the former U.S.S.R. and how they affect crude oil production could greatly influence world crude prices this year.

If conditions remain relatively stable in the region and production slides only marginally, world crude oil supply will increase more than demand in 1992 and suppress prices to some degree. Extent of the price slide in prices will also depend upon the pace of economic recovery in the U.S. and Europe.

HIGHLIGHTS

Here are highlights of Oil & Gas Journal's forecast for U.S. markets and industry activities in 1992:

• Total energy demand will increase 2% to 82.89 quadrillion BTU (quads). This follows an 0.1% drop in 1991 to 81.25 quads. All primary energy sources are expected to contribute to the increase this year.

• U.S. petroleum product demand, excluding exports, will increase 1.7% to 16.97 million b/d following a decline of 1.8% last year to 16.69 million b/d. Prior to 199 demand had moved up for 6 consecutive years.

• U.S. crude and condensate production will fall 3.2% in 1992 to 7.15 million b/d. Output last year moved up 0.4% to average 7.385 million b/d. Production projected for 1992 is the lowest since 1960.

• Total liquids production, including crude oil, condensate, NGL, and other hydrocarbons will fall 2.7% this year to 8.85 million b/d. Production at the projected level would be the lowest since 1964.

• Total industry imports of crude oil and petroleum products will increase 6.1% in 1992 to 8.06 million b/d. Imports in 1991 were 7.6 million b/d, down 4.9% from the year earlier. The peak year for U.S. industry imports was 1977 with an average of 8.786 million b/d.

• Strategic Petroleum Reserve (SPR) crude oil stocks declined by 17 million bbl last year to 569 million bbl at yearend. During the Persian Gulf crisis the government conducted a limited sale of SPR crude. In addition, imports of crude for the SPR was curtailed. OGJ expects a resumption of SPR imports by midyear 1992 at rates lower than before. The SPR is projected at 575 million bbl at yearend 1992.

• Crude input to refineries is expected to move up 1.7% to 13.475 million b/d, and total inputs to stills will move up to 13.68 million b/d. Refinery capacity is expected to average 15.75 million b/d, up 0.2% from 1991. The refinery average utilization rate will increase to 86.9% from 85.6% in 1991.

• Natural gas consumption will increase 2.6% in 1992 to 19.38 tcf. Demand last year was up 0.4% at 18.895 tcf. U.S. production in 1992 will increase 2.1% to 18.72 tcf after an 0.8% dip in 1991 to an estimated 18.33 tcf. Imports will increase 6.1% to 1.75 tcf. Last year imports increased 7.7% to 1.65 tcf. Imports of LNG are expected to increase to 60 bcf in 1992 from 50 bcf last year.

THE ECONOMY

The slump in U.S. economic activity that started late in 1990 and continued into first half 1991 depressed demand for energy and petroleum products. Early estimates indicated some modest growth in the third quarter of 1991, but the general sluggishness of the economy continued throughout the year. There are concerns the economy may slip back into recession in 1992.

OGJ projects that gross national product (GNP) will rise 2.5% in 1992 after falling in 1991. Generally, GNP moves up faster during the recovery phase of a business cycle, but a number of problems make it doubtful that the level of economic activity will move up sharply this year.

Last year GNP in 1982 dollars fell an estimated 0.5% following a sluggish 0.9% increase in 1990. The decline last year ended a string of 8 consecutive years of economic growth.

Industrial production fell an estimated 2.1% in 1991 following a modest 1% increase the year before. New car sales were down an estimated 10.5% at 8.5 million. Housing starts in 1991 slumped an estimated 16% to 1 million. And the unemployment rate moved up to 6.7% from only 5.5% in 1990.

Growth in personal consumption expenditures slowed to 0.4% in 1991 from 0.9% in 1990. Nonresidential fixed investment fell an estimated 2.8%. It is expected that 1992 will see modest improvements in those economic indicators.

Industrial production is expected to move up about 3.8% in 1992. Private housing starts are expected to rebound to 1.2 million, new car sales to 9.3 million.

The unemployment rate will slip to 6.5%, while personal consumption expenditures will move up 2.3% and nonresidential fixed investment will rise 3%.

ENERGY DEMAND

The slight increase in economic activity will revive energy demand, although continued energy consumption efficiency improvements will keep the growth rate for energy demand below that for the economy.

Energy efficiency, measured in terms of energy consumption per dollar of GNP, has been improving steadily since 1970. Lower energy prices slowed the rate of improvement during 1986-88 by reducing the incentives for conservation and slowing investments in energy efficiency. The slump in 1991 also slowed the efficiency improvement rate.

It is more costly to improve energy efficiency today than it was in earlier years. Most of the easy and less costly methods for improving energy efficiency have already been used.

In 1991 the U.S. economy consumed 19,600 BTU of energy for every dollar of GNP. This is down 29.5% from 27,800 BTU/S in 1970. From 1970 through 1991 GNP increased 71.2% while energy consumption moved up only 21%.

With investment in energy efficiency a continuous part of U.S. economic activity, improvements are expected to continue for a long time. This year's energy consumption will amount to 19,500 BTU/$ of GNP.

Among the primary energy sources, nuclear power-the fastest growing energy source during the last several years-will post the smallest rate of demand growth this year. Safety concerns have curtailed nuclear power expansion. Energy from nuclear will increase 0.8% in 1992 to 6.5 quads following a 4.3% increase to 6.45 quads last year.

Nuclear's share of the energy market will slip to 7.8% in 1992 from 7.9% last year. It was 7.6% in 1990.

The number of operable nuclear power units peaked at 112 in the summer of 1990 and is now 111. Nuclear capacity peaked at 100.497 billion kw in August 1990 and was down to 99.624 billion kw in August 1991. Future increases in power generated in nuclear facilities will come from increased utilization of existing capacity. This will be partially offset by the shutdown of some order facilities.

Consumption of energy from petroleum is expected to move up 1.7% in 1992 to 33.54 quads. This follows a decline of 1.8% in 1991 to 32.965 quads, Oil energy consumption fell for 3 consecutive years from a recent high of 34.222 quads in 1988. For the 5 years prior to that oil energy consumption had moved up 13.9% from 30.054 quads in 1983.

Even though oil energy consumption is expected to move up in 1992, its share of the energy market will slip to 40.5% from 40,6% in 1991 and 41.2% in 1990. Oil's share of the market fell from 48.7% in 1977 to 41.8% in 1985. The oil market share then moved up after oil prices fell and demand increased, reaching 43.4% in 1986. Market share then slipped to 42.7% in 1988 and 42.1% in 1989.

Demand for energy from natural gas this year will increase 2.6% to 19.99 quads. This follows an increase of 0.4% in the recession year of 1991. Low natural gas prices helped stimulate consumption even though the economy was depressed. The natural gas energy market share will move up to 24.1% from 24% in 1991 and 23.8% in 1990.

Natural gas will increase its lead over coal as the second leading fuel source for the U.S. economy.

Natural gas consumption by electric utilities is expected to move up in the next few years. Hydroelectric power output will increase if weather allows, but capacity is limited. Nuclear power growth will slow substantially since capacity has peaked.

Coal consumption for electric power generation will continue to rise with growing demand for electrical power. However, environmental concerns and costs of clean air regulations will tend to slow the rate of increase.

During this growth period for power demand, natural gas will fill the gap for fuel for increased generation.

Coal energy consumption in 1992 will move up 2.3% to 19.49 quads. In 1991 coal energy demand fell 0.2% to 19.05 quads due to the economic slowdown. Coal's share of the energy market will move up to 23.5% in 1992 from 23.4% in 1991. It was 23.5% in 1990.

Energy from hydro, Geothermal, and other small power sources will move up 2.1% in 1992 to 3.37 quads. This follows an increase of 4.7% in 1991 to 3.3 quads. The level of hydroelectric output is still moving up after being depressed by extreme drought in the West over several years.

Market share for these sources will remain at 4.1% in 1992. The market share was 3.9% in 1990 and as low as 3.6% in 1988.

U.S. PRODUCTION

U.S. production of crude and condensate peaked at 8.971 million b/d in 1985. Since then slumping oil prices, erosion of drilling tax incentives, and costly environmental restrictions have depressed exploration and drilling activity, and output has slumped.

The OGJ production projection for this year will represent a decline of 20.3% from the 1985 level. Drilling this year will present no hope for another production gain. OGJ projects another record low average rig count of 810 in 1992.

The projected U.S. total liquids production average this year will be down 16.8% from the recent high of 10.636 million b/d in 1985. Production of NGL and other hydrocarbons not included in the crude and condensate numbers moved up 4.3% in 1991 to 1.71 million b/d. Output is expected to average 1.7 million b/d for 1992.

Alaskan production is estimated to have averaged 1.81 million b/d in 1991, up from 1.773 million b/d the year before, when maintenance work on the Alaskan pipeline slowed output. Alaskan production peaked at a year-long average of 2.017 million b/d in 1988.

Alaskan production is projected to average 1.8 million b/d this year. Following completion of pipeline maintenance and some enhanced recovery projects, production will hold close to current levels. Longer range projections still call for output to slip if new areas are not opened for development.

Lower 48 production averaged 5.575 million b/d in 1991, compared with 5.582 million b/d in 1990. Output moved up in 1991 in Texas, Louisiana, and California.

Lower 48 production is projected to resume its normal, steeper slide in 1992, falling 230,000 b/d to 5.35 million b/d.

At the end of 1984, Lower 48 production reached 7.157 million b/d. Output this year will be down 1.807 million b/d, 25.2%, from that recent high.

Among key producing states, 1991 production averages and changes from 1990 were Texas 1.93 million b/d, up 4,000 b/d; Louisiana 1.088 million b/d, up 12,000 b/d; California 965,000 b/d, up 4,000 b/d; Oklahoma 298,000 b/d, down 10,000 b/d; and Wyoming 278,000 b/d, down 7,000 b/d.

IMPORTS

The increase in U.S. liquids production in 1991, coupled with the decline in domestic demand related to the economic slowdown, led to the reduction in petroleum imports in 1991.

Most of the 4.9% year-on-year decline was in petroleum product imports, which fell 304,000 b/d to 1.82 million b/d. Crude oil imports, excluding the SPR, fell 1.5% to 5.78 million b/d.

This year product imports will follow demand, increasing 6% to 1.93 million b/d. Crude oil imports will move up 6.1% to 6.13 million b/d.

Projected import dependency of 47.5% of total consumption this year compares with 45.5% last year and 47% in 1990. The record high was 47.7% in 1977, the recent low 31.5% in 1985.

In the government's emergency sale of crude, SPR stocks were reduced 17 million bbl during 1991 from 586 million bbl at yearend 1990. SPR thus provided about 46,500 b/d to domestic supply during 1991. OGJ assumes the resumed SPR fill rate will be about 30,000 b/d in the second half of 1992.

This would add as much as 6 million bbl to stocks. However if the economy remains sluggish and the federal budget deficit grows, the government may not resume purchases for strategic storage.

Industry crude oil stocks were 345 million bbl at yearend 1991 and are not expected to be increased this year. Product stocks are also expected to remain close to the 1991 level, ending the year at 700 million bbl in inventory, the same as last year.

REFINING

Weak demand hurt refining profitability in 1991. Lower product sales combined with prices at or below year ago levels reduced revenues and margins. However, this was partially offset by lower crude oil prices.

Crude runs to stills slipped less than product demand-1.2%-to average 13.25 million b/d for 1991. Refiners cut back sharply on product imports, which averaged 14.3% less than in 1990, and utilized U.S. refining capacity.

Total U.S. refining capacity moved up 0.61/c in 1991 to average 15.715 million b/d. The refinery utilization rate dropped to 85.6% from 87.1% in 1990.

Crude oil prices fell following the short war in the Persian Gulf. The annual average U.S. wellhead price of crude oil fell 16.1% in 1991 to $16.80/bbl. The price averaged $20.03/bbl in 1990 and $15.86/bbl for 1989. The average landed cost of imported crude oil fell 13.5% to $18.30/bbl from $21.16/bbl in 1990.

Product prices did not fall as sharply as crude oil prices. Generally this would help boost profits, but sales volumes were lower. The average pump price of unleaded motor gasoline fell only 1.7% to $1.144/gal. But the pump price for 1991 reflects a 5/gal increase in the federal tax on motor gasoline.

The wholesale price to refiners fell about 9%. The average wholesale price of No. 2 fuel oil fell 8.6% to average an estimated 63.7/gal.

Through the first 9 months of 1991 the estimated average refining cash operating margin was $2.02/bbl, down from $2.11/bbl the year before but well above the 85/bbl in the same period of 1989.

The average margin for the year will probably be somewhat lower since refining activity is generally lower in the fourth quarter of the year.

Total industry stocks at the end of 1991 were up 1% from a year earlier. Refiners boosted crude stocks 6.8% to 345 million bbl, while product stocks were down 1.7% at 700 million bbl.

Stock levels are expected to remain at close to 1991 levels and end the year without significant change.

PRODUCT DEMAND

A modest resurgence in economic activity will be the major factor stimulating petroleum product demand in 1992. Closer to normal winter weather is also expected to push up fuel oil consumption early in the year. Stable and possibly lower petroleum product prices will also boost total petroleum consumption.

OGJ is projecting demand to be up this year for all of the major product groups. Last year demand fell for all major products except LPG and ethane.

Total U.S. product demand including exports is projected at 17.87 million b/d, up 1.2%. Total demand last year was 17.655 million b/d, down 1.1%.

Exports are expected to fall to 900,000 b/d from 965,000 b/d in 1991. Exports last year increased 12.6% from the year earlier to an estimated 850,000 b/d.

Petroleum product demand hit a record high in 1978 at 18.847 million b/d. Responding to high prices, demand fell after that to 15.231 million b/d in 1983. After prices fell, demand moved up to 17.325 million b/d in 1989, recapturing 57.9% of the decline. A slowdown in economic activity and a sharp rise in prices in 1990 led to a slump in demand the past 2 years.

Improved energy efficiency and fuel switching have also dampened petroleum demand. The amount of oil energy consumed for each dollar of GNP has been falling since 1977.

The ratio fell from 12,500 BTU/$ of GNP in 1977 to 8,000 BTU/$ GNP in 1991, a drop of 36%. It is forecast to continue to fall to 7,900 BTU/$ GNP in 1992.

MOTOR GASOLINE

Demand for motor gasoline is projected by OGJ to move up in 1992 as the economy improves-by 0.3% to 7.23 million b/d.

Increases in the vehicle fleet size along with an increase in miles driven will boost consumption. Pump prices are expected to remain at close to current levels and may even fall in 1992 if crude prices slip because of excess world supply. These factors will be partially offset by greater vehicle fleet efficiency.

However, the improvement in vehicle efficiency is slowed by the poor economy since vehicles are not replaced as rapidly.

Last year motor gasoline demand averaged an estimated 7.21 million b/d, down 0.3% from 1990. Demand fell for 3 consecutive years after hitting a recent peak of 7.336 million b/d in 1988.

The record high year for gasoline consumption was 1978 at 7.412 million b/d. After that, high pump prices stimulated conservation efforts and rapid improvement in vehicle fuel efficiency.

As a result, consumption fell to 6.539 million b/d in 1983. During the next 4 years, lower gasoline prices and steady economic growth pushed gasoline demand back close to the previous highs. During that period, growth of the vehicle fleet and increased miles driven more than offset gains in vehicle fuel efficiency.

The average miles driven per gallon of motor gasoline moved up from 13.3 mpg in 1973 to 20.92 mpg in 1990, an increase of 57.3%. The average fuel consumed per car per year fell from 771 gal in 1973 to 505 gal in 1990, a drop of 34.5%.

The average distance driven per vehicle was 10,256 miles in 1973. This fell to a recent low of 9,141 miles in 1980. It has climbed steadily since then, reaching 10,556 miles in 1990. The number of automobiles registered increased from 121.6 million in 1980 to 145 million in 1990. During 1980-90, miles driven per vehicle moved up 15.5%, and the number of vehicles registered moved up 19.3%.

Motor gasoline pump prices drifted downward during 1991. Following the end of the conflict in the Middle East prices fell along with crude costs. Prices continued to drift lower during the year because of weak demand brought on by the sluggish economy.

The OGJ U.S. average pump price for self service unleaded gasoline was $1.2284/gal the first week of 1991. It slipped to $1.0872/gal the last week of the year. The price for the year averaged $1.1542/gal.

Motor gasoline prices may slump further in 1992 if the economy does not recover rapidly. Crude costs may fall, enabling refiners to lower product prices to try to stimulate demand or capture market share.

JET FUEL DEMAND

Jet fuel demand is expected to move up in 1992 along with the economic recovery.

Total jet fuel demand is projected to increase by 45,000 b/d, or 3%, to average 1.535 million b/d for 1992. Most of the increase will be in demand for kerosine jet fuel for commercial aircraft, which will move up 40,000 b/d to 1.355 million b/d.

Demand for naphtha jet fuel for military aircraft is projected to move up marginally, 5,000 b/d, to 180,000 b/d.

Last year total jet fuel demand fell 32,000 b/d to 1.49 million b/d. Naphtha jet fuel consumption was down 7,000 b/d at 175,000 b/d. Kerosine jet fuel demand fell 25,000 b/d to 1.315 million b/d.

Total available seat miles flown by U.S. scheduled airlines was down 2.9% from the year before for the first 11 months of 1991. Total passenger boardings fell 3.9% in the same period.

Domestic seat miles flown were down 3.9%, domestic passenger boardings down 3.6%. International seat miles flown moved up 0.8%, but passenger boardings fell 6.2%.

Air freight revenue-ton-miles flown for the first 11 months of 1991 were down 4.9% from 1990. Domestic freight operations were down 4.1%, and international operations down 5.9%.

The drop in fuel consumption last year was due to the decline in traffic and some improvement in fleet fuel efficiency. With an improvement in the economy the traffic volume is expected to move up in 1992, particularly in the latter half of the year.

Demand for naphtha jet fuel for military aircraft will depend upon decisions regarding the defense budget and spending. It is expected that there will be little change in 1992.

DISTILLATE DEMAND

Demand for distillate fuel oil will increase 2.9% this year to 3.055 million b/d.

Last year demand fell 1.7% to 2.97 million b/d due to the slump in economic activity and somewhat warmer than normal weather, particularly in the first quarter.

The warm weather reduced residential and commercial demand. In addition, the low price for natural gas helped stimulate conversions and movement away from distillate fuel oil for home heating. The slowdown in the economy had the biggest effect on industrial, railroad, and both off-highway and on-highway transport demand for distillate, all of which fell in 1991.

There was an increase in military demand due to the increase in activity connected with the conflict in the Persian Gulf.

A return to more-normal weather will help sustain residential and commercial demand this year. However, increased consumption for heating will be partially offset by conversions to natural gas and conservation connected with sluggish economic conditions.

With economic improvement, demand for distillate will move up later this year for industrial, railroad, and highway transport. With lower oil prices, electric utility demand for distillate will increase modestly.

The average wholesale price of No. 2 fuel oil fell 8.6% in 1991 to 63.7/gal. The previous year's price was elevated by the fourth quarter jump resulting from the conflict in the Middle East.

Lower crude costs this year will tend to reduce the distillate price, countering the price effects of increased demand.

RESIDUAL FUEL OIL

Demand for residual fuel oil is expected to move up an average of 30,000 b/d, or 2.6%, to 1.19 million b/d this year. Last year resid demand fell 5.6% to 1.16 million b/d.

Economic recovery and price reductions will boost demand marginally in the industrial and electric utility sectors. Most utilities can switch to other fuels when the resid price is high. Resid is generally used when additional generating capacity is needed to meet peak power demand or incremental increases.

Demand for electric power will continue its strong growth in 1992, reflecting not only economic recovery but also the continuing shift of the U.S. toward a more service-oriented, electrified economy. Of the three fuels that can provide the increase-coal, natural gas, and petroleum-petroleum represents the highest costs but in some cases can provide increased generation without addition of costly facilities.

Transportation demand for resid will also move up this year due to shipping activity associated with the increase in crude oil and petroleum product imports.

OTHER PRODUCTS

Demand for LPG and ethane will move up 1.5% in 1992 to 1.68 million b/d. This follows an increase of 6.4% in 1991 to 1.655 million b/d.

Demand in 1990 fell sharply to 1.556 million b/d due to an abnormally warm heating season and continuation of a slump in the chemical industry. With closer to normal weather, residential and commercial consumption increased last year, and chemical demand began to recover.

This N,ear most of the increase will be from increased chemical industry demand as the economy moves out of the recession. Demand from the chemical sector is expected to move up to an estimated 1.09 million b/d from 1.05 million b/d in 1991 and only 1.007 million b/d in 1990.

Demand for all of the other petroleum products as a group is expected to increase 3.4% in 1992 to 2.28 million b/d.

Last year demand fell 9.1% to 2.205 million b/d due to the poor economy. Demand in 1990 was 2.425 million b/d. Most of the improvement will be from increases in demand for asphalt and for petrochemical feedstocks. Demand for lubricants will also move up along with the improvement in the economy and increased transportation activity.

This miscellaneous "all other petroleum products" category will represent 13.417, of total U.S. demand in 1992.

NATURAL GAS

Several factors will lift natural gas consumption in 1992.

In the residential and commercial sectors, economic recovery, more-normal weather, the preference for natural gas in new houses, and conversions from other heating types all will boost demand.

Industrial gas demand will move up due to the economic recovery and growing nonutility power generation.

Electric utility consumption of natural gas is also expected to increase as electrical power consumption moves up along with the economic recovery. Low prices will continue to give natural gas a competitive advantage over heavy fuel oil for power generation. And slow growth in power generation from other sources will offer some opportunity for growth in natural gas consumption.

Last Near residential demand increased 3.1%, and commercial demand was up 2.3%. These gains were offset by a 2.5% drop in industrial demand. The industrial sector consumes the largest volume of natural gas, about 37.5% in 1991.

Consumption of natural gas fell from 20.241 tcf in 1979 to 16.221 tcf in 1986 due to price increases and competition from other fuels. Demand in 1992 will be up 3.159 tcf from 1986, recovering 78.6% of the 1979-86 decline.

Natural gas consumption is expected to rise significantly later in the 1990s, driven greatly by the continuing growth in demand for electricity.

U.S. gas production will climb in 1992 due to the increase in consumption and a slowdown in the import growth rate. Marketed natural gas production will climb 2.1% to 18.72 tcf.

Increased imports in 1991 and a slowdown in the volume of gas being sent to underground storage led to the decline in domestic output.

Imports of natural gas last year moved up 7.7% to 1.65 tcf. Imports from Canada increased 10.5% to 1.6 tcf. LNG imports from Algeria fell to 50 bcf from 84 bcf in 1990 as falling gas prices hurt LNG economics.

Of the 1.75 tcf of imports expected this year, 1.69 tcf will be from Canada, a 5.6% increase.

The average U.S. wellhead price of natural gas fell to $1.57/Mcf for 1991 from $1.72/Mcf in 1990. Annual average gas prices had been relatively constant for 4 years: $1.67/Mcf in 1987, $1.69/Mcf in 1988 and 1989, and $1.72/Mcf in 1990.

A sharp increase in imports and slow demand growth have sustained a gas surplus and suppressed prices.

Natural gas prices peaked in 1984 at $2.66/Mcf. As crude oil prices fell, fuel oil became more competitive with natural gas, reducing demand and forcing prices lower.

The increased imports and slow growth in energy demand have kept downward pressure on prices for an extended period.

Increased consumption and a slowing of the rate of import growth are expected to help natural gas prices move up this year. The average wellhead price is projected to rise about 3.5%. The increase is dependent upon the rate of economic recovery and the weather.

Copyright 1992 Oil & Gas Journal. All Rights Reserved.