IPAA: U.S. OIL IMPORTS TO HIT RECORD

A modest increase in U.S. petroleum product demand will combine with a decline in U.S. crude production to yield a record level of total petroleum imports in 1993.

The Independent Petroleum Association of America's supply/demand committee predicts a 1.1% increase in U.S. demand for petroleum products this year, coupled with a 2.5% drop in crude production. That opens a widening gap to be met by petroleum imports, forecast to increase 4.7%.

Increases in natural gas consumption and production are expected to be more in line, 2.1% and 2.5%, respectively, while imports of natural gas will increase 7.2%.

Petroleum product demand is expected to continue rising while crude production declines through 2000. Total imports will move up to fill the growing gap, increasing to 54.9% of U.S. oil supply by 2000, the committee reported.

Consumption, production, and imports of natural gas also will increase steadily through 2000, with gas expected to capture a growing share of the energy market.

PETROLEUM DEMAND

The committee predicts the second straight year of rising U.S. petroleum product demand following 2 years of decline.

Demand will increase 1.1% in 1993 to 17.189 million b/d. That compares with an increase of 1.7% in 1992 to 17.006 million b/d. The recession and sluggish recovery led to a decline in demand of 1.9% in 1990 and a decline of 1.6% in 1991 to 16.714 million b/d.

Motor gasoline demand will increase for the second straight year in 1993 after 3 years of decline. Motor gasoline demand this year is forecast at 7.33 million b/d, up 0.8%, while demand last year moved up 1.2% to 7.271 million 8/d. The record high was 7.412 million b/d in 1978.

Fuel efficiency gains will be more than offset by additional miles driven. In recent years motor vehicle fleet efficiency gains have been slowed by sluggish auto sales.

Demand for aviation fuel will resume its growth in 1993 after a 2 year slide, increasing 1.7% to 1.475 million b/d. Demand fell 1.4% in 1992. The air traffic industry forecasts an increase in revenue from passenger miles and freight ton miles flown.

Demand for distillate fuel oil will rise 2.8% in 1993 to 3.064 million b/d following an increase of 2% in 1992. Gains are expected in all end use sectors except residential and commercial heating.

The rate of decline in residual fuel consumption will slow to 1.8% this year to 1.072 million b/d. Demand fell 5.7% in 1992.

Demand for all other petroleum products will increase 0.9% in 1993 to 4.248 million b/d. Demand for other products increased 5.2% in 1992. This year's growth will come mainly from higher demand for liquefied petroleum gases, asphalt, and petrochemicals.

PETROLEUM SUPPLY, IMPORTS

The IPAA committee expects the slide in crude oil production that started in 1985 to continue for the next few years.

Production, which fell 3.6% to 7.153 million b/d in 1992, will slip another 2.5% to 6.974 million b/d this year, the lowest level since 1958.

The decline in number of wells drilled, number of rotary rigs working, and other industry indicators point to continued erosion in crude oil production and reserves.

Natural gas liquids production also will slip in 1993, down 1.1% at 1.678 million b/d. As a result, total liquids output will be down 2.2% at 8.65 million b/d, the lowest since 1963.

Slumping production and rising demand will lead to another increase in imports in 1993. Total crude oil and petroleum product imports will advance 4.7% in 1993 to 8.212 million b/d, after a 2.9% increase in 1992. The record level of petroleum imports was 8.876 million b/d in 1977.

U.S. import dependency will reach a record high in 1993 at 47.8% of demand - up from 46. 1 % in 1992 and 45.6% in 1991. The current record is 47.7% in 1977.

NATURAL GAS DEMAND

Increased economic activity and colder weather in first quarter this year will boost 1993 natural gas consumption 2.1% to 20,148 tcf following a 3.5% increase in 1992,

The industrial sector posted the strongest gain in 1992, mostly due to the continued growth of gas fired cogeneration. Growth in industrial demand is expected to lead the way again in 1993, rising 2.7% to 7.846 tcf.

Last year consumption increased in the residential and commercial sectors as many customers began to take advantage of new pipeline capacity, particularly in the Northeast.

Growth of customers in the residential and commercial sectors has been strong. Since 1987 natural gas has captured a dominant share of the new housing market. Conversion to natural gas from other fuels also has increased in recent years. And cogeneration in the commercial sector is increasing. Residential consumption will move up 2.6% in 1993 to 4.825 tcf, and commercial demand will be up 1.3% at 2.809 tcf.

In 1992 the electric utility sector posted a slight decrease in consumption due to mild summer weather in many regions, especially the Southwest. Utility demand is expected to grow only modestly in 1993, increasing 0.7% to 2.785 tcf. Additions of coal and nuclear power plants in the Southwest and the expected strong increase in hydropower this year will slow utility demand for natural gas.

Natural gas exports, particularly to Mexico, will continue to increase. For 1993 total U.S. exports will move up 4.9% to 257 bcf, including about 55 bcf of liquefied natural gas exports from Alaska to Japan.

NATURAL GAS SUPPLY

The committee expects U.S. natural gas flow to move up 3% in 1993 to 18.276 tcf following 3 years of relatively steady production of 17.7-17.8 tcf.

Production from New Mexico, Colorado, and Alabama will continue to increase, mostly due to the success of coalbed methane development.

In other areas, natural gas productive capacity has declined for lack of drilling. Texas, Louisiana, Oklahoma, and Kansas will continue to log production declines.

The increase in gas consumption in recent years has been met mainly by higher imports. U.S. natural gas imports, almost entirely from Canada, have set records each year since 1988.

Imports are expected to advance another 7.2% in 1993 to 2.211 tcf. Imports increased 16.3% last year to 2.062 tcf. Imports provided 10% of U.S. consumption in 1992 and will be about 11% this year.

The current estimate of Canadian pipeline export capacity is 2.4 tcf/year. This will increase in coming years as pipeline expansion projects are to go on stream.

By November 1993 most pipelines will be operating under Federal Energy Regulatory Commission Order 636, allowing customers greater control over capacity and use of storage previously managed by interstate pipelines.

FORECAST 1993-2000

U.S. petroleum product demand will keep growing at about I%/year throughout the rest of the 1990s, the IPAA committee said. Demand will reach 18.5 million b/d in 2000. Demand for all major products will post increases during 1993-2000.

Growth in motor gasoline consumption will be slower than in other products, with increased fuel efficiency and conservation offsetting gains in miles traveled. More stringent corporate average fuel economy standards or added taxes on gasoline could dampen gasoline demand even further.

Long term, competition among fuels and efficiency gains are likely to limit growth in demand for all petroleum products.

The committee expects the downward trend in crude oil production to continue. Production will slide to an average 5.964 million b/d in 2000, the lowest level since 1950.

Oil imports will continue to move up over the period to fill the gap between demand and production. The growth rate in oil imports will amount to 4%/year during 1993-95, slowing to 2.8%/year in 1995-2000.

Imports will amount to 10.148 million b/d in 2000, with import dependency increasing to 50.2% in 1995 and 54.9% in 2000.

Natural gas consumption will reach 22.7 tcf in 2000, reflecting growing demand for electrical power generation and strong gains in industrial demand. Demand will rise 2.5%/year in 1993-95 and 1.5%/year in 1995-2000.

Natural gas is expected to gain market share in power generation due to improved efficiency of new combined cycle plants and, to a lesser extent, environmentally motivated fuel switching. In addition, some coal fueled plants and nuclear plants will be taken out of service.

Some growth will come from compressed natural gas vehicles, which will continue to penetrate the fleet vehicle market. Growth in the commercial and residential sectors will be constrained by conservation, demographics, and high saturation rates.

Natural gas production will rise to 19.739 tcf in 2000, moving up 1.5%/year in 1993-95 and 1%/year in 1995-2000.

And natural gas trade is expected to increase dramatically. Imports will increase to 2.536 tcf in 1995 and 3.124 tcf in 2000. Exports to northern Mexico will grow substantially as total U.S. exports advance to 335 bcf in 1995 and 380 bcf in 2000.

The committee noted that for this relatively optimistic forecast to play out, current regulatory uncertainties will have to be resolved favorably and there must be a rebound in drilling.

Copyright 1993 Oil & Gas Journal. All Rights Reserved.