U.S. OIL AND GAS DEMAND SET TO GROW AGAIN IN 1993

Robert J. BeckEconomics Editor

Renewed economic growth in 1993 will increase total U.S. energy use, bringing a modest gain in demand for petroleum products and continued healthy growth in natural gas consumption.

On the other side of the equation, production of crude and condensate in the U. S. will drop again in 1993. This year's drilling won't do much to reverse this dismal trend. The Journal projects the number of well completions to be virtually the same as last year, though operators say they may drill more exploration wells this year.

The widening gap between domestic production and demand will mean another sizable increase in imports.

U.S. refining capacity will slip this year because of the high cost of meeting environmental regulations. Reduced capacity, coupled with increased product demand, will raise refinery utilization rates to almost 90%.

Outside the U.S., the worldwide recession is still keeping a lid on demand growth.

And despite the continued production decline in the U.S. and the C.I.S., world crude supply will be more than adequate in 1993. Kuwait's return to prewar production levels, the prospect of Iraq's reentry into the market, and capacity expansion plans will keep downward pressure on prices throughout the year.

Following are highlights of Oil & Gas Journal's forecast of U.S. petroleum activity and markets for 1993:

• As the economic recovery gathers steam, total energy demand will increase by 2.1% to 84.04 quadrillion BTU (quads). This follows an estimated 1.5% increase in 1992. Demand for energy from all primary sources will increase.
• U.S. petroleum product demand will increase 1.2% to 17.14 million b/d. Last year, demand gained 1.4%. Demand declined in 1990 and 1991 but increased for 6 consecutive years during 1984-89.
• Crude and condensate production in the U.S. will fall 2.5% to 6.97 million b/d. Output last year was down 3.6% from the previous year. The projected 1993 production average will be the lowest in 35 years.
• Total liquids production, including crude oil, condensate, NGL, and other hydrocarbons will drop 2.1% to 8.75 million b/d, the lowest level since 1963.

• Higher demand and lower production will result in another substantial increase in imports. Total imports of crude oil and petroleum products will increase 4.8% from 1992's level to 8.26 million b/d. Imports gained 3.3% last year; the highest level was in 1977 when imports averaged 8.786 million b/d.
• Crude oil stored in the Strategic Petroleum Reserve (SPR) is expected to reach 590 million bbl by yearend, compared with 575 million bbl at the end of last year. SPR imports were resumed in mid-1992 after being curtailed from September 1990 to June 1992 for reasons related to the Persian Gulf crisis.
• Crude input to refineries will increase 1.2% to 13.6 million b/d; total inputs to stills will reach 13.81 million b/d. The cost of meeting U.S. environmental regulations will reduce refining capacity by 0.8% to an average of 15.4 million b/d. Increased crude runs and reduced capacity will boost the average refinery capacity utilization rate to 89.7%.
• Natural gas consumption will continue its growth, gaining 3.8% to 20.58 tcf. Demand last year was up 4.1%. U.S. production is expected to increase 2.8% to 19.4 tcf. Domestic output increased 1.9% last year. Imports of natural gas, almost entirely from Canada will increase by 9.8% to 2.3 tcf. Last year natural gas imports jumped 18.2%.

ECONOMY THE KEY

The U.S. economy is beginning to gather momentum in recovering from the recession and stagnation that lasted from the last half of 1990 through the first half of 1992.

OGJ projects that real gross domestic product (GDP) will grow at a slightly faster rate in 1993, increasing 2.7% compared to an estimated 1.9% in 1992. GDP declined by 1.2% in 1991.

Faster economic growth will boost demand for energy, including oil and natural gas.

The recession depressed demand for energy and petroleum products in 1991, and the slow growth in economic activity last year led to only modest increases.

The decline in 1991 followed 8 consecutive years of economic growth.

Industrial production, a key component of economic activity, increased 1.6% in 1992. OGJ forecasts an increase in industrial output of 3.5% in 1993. After falling 2.3% in 1992, car sales will rebound to 9.3 million in 1993. Housing starts recovered in 1992 and are expected to continue to gain in 1993.

The sluggishness of the economy was reflected in the unemployment rate, which jumped to 7.4% last year from 6.6% in 1991 and 5.4% in 1990. Unemployment is forecast at 7.1% in 1993.

Slow economic growth has been accompanied by a slowing of the inflation rate. The GDP price deflator shows the rate of increase in the prices for all goods and services declined from 4.4% in 1990 to 4% in 1991. It is estimated at 2.6% last year.

The Consumer Price Index (CPI) followed a similar path with the rate of increase in consumer prices falling from 5.4% in 1990 to 4.3% in 1991 and 3.2% in 1992.

The CPI is expected to increase slightly to 3.6% in 1993 as the economy expands.

ENERGY USE UP

The increase in energy consumption due to increased economic activity will more than offset improvements in energy efficiency. But continuing conservation efforts will keep the growth rate for energy demand below the economic growth rate.

Energy efficiency, has been improving steadily since 1970. During periods of lower energy prices the rate of improvement slowed due to the reduced financial incentive. Also slowing the rate of improvement now is the fact that efficiency gains are more costly than in earlier years-the easy improvements have been made.

In 1992 the U.S. economy consumed 16,800 BTU of energy for every dollar of GDP. This is down 28.2% from the 23,400 BTU per dollar used in 1970. Energy consumption per dollar of GDP in 1993 will slip to 16,700 BTU.

The increase in energy consumption expected this year will come from all of the primary energy sources. But rates of growth will differ, changing market shares.

Together, oil and gas will continue to dominate the energy market. Their combined market share will remain at 65.3% in 1993, up from 64.7% in 1991. These two fuels contributed 77.7% of U.S. energy in 1972.

Among primary energy sources, the slowest growth is expected for petroleum this year. Oil consumption will gain only 1.2% in 1993 to 33.7 quads, following an increase of 1.4% last year. Oil consumption fell for 3 consecutive years, 1989-91, from a recent high of 34.222 quads in 1988.

Efforts to reduce oil consumption for environmental and national security reasons are likely to increase, putting further pressure on oil demand growth.

Oil's share of the energy market will slip to 40.1% in 1993, down from 40.5% in 1991 and 1992. Oil's share has fluctuated widely over the past 15 years, depending on oil prices. Market share fell from 48.7% in 1977 to 41.8% in 1985.

Lower oil prices helped boost market share to 43.4% in 1986.

In contrast, natural gas is expected to post one of the largest consumption increases in 1993, gaining 3.8%. Deregulation has increased competition and efficiency in the natural gas industry, helping to boost consumption.

In part because it is considered by many to be an environmentally preferred fuel, natural gas has been able to increase its market share. The natural gas share of the market will reach 25.2% in 1993, up from 24.8% last year and 24.2% in 1991.

More-normal weather and growth in industrial and electric utility markets are expected to boost natural gas energy demand.

Electrical power generation is one of the biggest potential markets for energy. Because all of the major energy sources are used for power generation, it also is the market with the most intense interfuel competition.

In the near term, natural gas will help meet the demand for increased electrical power generation capacity.

This window of opportunity for natural gas is expected to last through the 1990s.

Safety and environmental concerns have curtailed the expansion of nuclear power generation. Increased output from nuclear facilities now depends on increasing the utilization rate of existing facilities. And that will be partially offset by the shutdown of some older facilities.

The number of operable nuclear power units peaked at 112 in the summer of 1990 and is now down to 110. Nuclear power capacity also peaked in August 1990 at 100.497 million kw. Capacity had slipped to 99.422 million kw at end 1992.

Nuclear power generation is expected to gain 1.8% this year to 6.63 quads, a record high. This follows a 0.5% drop in nuclear power production in 1992. The growth in 1993 will come from increased capacity utilization.

Nuclear's share of the energy market will remain at 7.9% in 1993, down from 8.1% in 1991. Nuclear energy accounted for 21.9% of total power generation in 1992.

Coal energy consumption increased 1% in 1992 and is projected to increase an additional 1.5% in 1993, to 19.25 quads. This growth rate for 1993 is the slowest of any of the primary energy sources.

Coal's share of the total energy market is expected to slip to 22.9% in 1993 from 23% last year.

Energy from hydro, geothermal and other miscellaneous power sources will increase 5.2% in 1993 to 3.25 quads. This follows a decline of 6.7% in 1992.

OIL PRODUCTION DOWN

The continued decline in U.S. crude and condensate output this year is the result of a depressed level of drilling activity, the natural production decline rate of mature reservoirs, and lack of access to prospective new onshore and offshore areas.

Average U.S. crude and condensate production will fall 180,000 b/d in 1993 to 7.15 million b/d. Last year's decline is estimated at 267,000 b/d.

Crude oil and condensate production in the U.S. reached 8.971 million b/d in 1985, partly as a result of the drilling boom of the early 1980s. Since then, slumping oil prices, environmental restrictions, and lack of access to promising areas have depressed exploration and development activity.

A slight gain in 1991 was due to the increase in Alaskan output, which was partially curtailed in 1990 to allow maintenance on the pipeline and pump stations. Alaskan North Slope output has now reached its peak and has started to decline.

OGJ's production estimate for 1993 represents a decline of 2 million b/d from the 1985 level, a drop of 22.3%.

Drilling activity continues to be depressed and therefore offers little hope for offsetting the U.S. production decline anytime soon.

The Baker Hughes Inc. count of active rotary rigs averaged only 717 for 1992, a modern record low. In 1991, an average of 860 rigs were active.

OGJ forecasts only a modest increase in rig activity in 1993 to 730 active rigs (see p. 78).

OGJ is forecasting U.S. total liquids production of 8.75 million b/d for 1993, down 2.1 % from last year. However, this is down 17.7% from the recent high of 10.636 million b/d in 1985.

Natural gas liquids (NGL) output moved up in 1991 and 1992. Production of NGL and other hydrocarbons not included in the crude and condensate numbers gained 2.2% in 1992 to an estimated 1.79 million b/d. This followed an increase of 6.8% in 1991.

This output will likely be sustained, averaging 1.78 million b/d for 1993.

Alaskan production will average 1.7 million b/d in 1993, down another 35,000 b/d from last year. Alaskan production for 1992 is estimated at an average 1.735 million b/d, down from 1.798 million b/d the year before and down from the peak of 2.017 million b/d in 1988.

Maintenance work on the pipeline and major enhanced recovery projects have slowed, but not prevented, a decline in output. North Slope production will continue to decline unless new areas are developed.

Lower 48 production will fall another 145,000 b/d to 5.27 million b/d in 1993.

Production in the Lower 48 averaged 5.415 million b/d in 1992, down 3.6% from the year before. Production in almost all of the large producing states was lower in 1992. Output fell in 1992 in the major producing states of Texas, Louisiana, and Oklahoma; California production held steady.

At the end of the drilling boom in 1984, Lower 48 production reached 7.157 million b/d. Output this year will be down 1.887 million b/d from that recent high.

IMPORT GAP WIDENS

The gap left by declining production and increasing demand in 1993 can only be filled by increased petroleum imports.

To fill that larger gap, crude and product imports will increase 380,000 b/d in 1993 to 8.26 million b/d.

Crude oil imports are projected to move up 300,000 b/d to 6.38 million b/d; product imports are forecast at 1.88 million b/d, an increase of 80,000 b/d from last year's level.

Dependency on imported will reach a record 48.2% of domestic demand in 1993. The previous high was 47.7% in 1977; the recent low was 31.5% in 1985.

Total crude and product imports increased 3.3% last year to 7.88 million b/d. The increase was all in industry crude imports, which exclude the SPR. Crude oil imports gained 5.2% to 6.08 million b/d. Increased U.S. refinery runs and changes in product demand led to a drop in product imports of 2.5% to an estimated 1.8 million b/d for 1992.

Dependency on petroleum imports increased to 46.5% of domestic demand in 1992 from 45.6% in 1991.

Government imports for the SPR resumed in mid-1992. For the year, SPR crude oil imports averaged an estimated 17,000 b/d. This boosted total SPR stocks to about 575 million bbl at yearend 1992. In 1991, the government's emergency sale of crude reduced SPR stocks by 17 million bbl.

This added 47,000 b/d to domestic supply that year and backed out imports.

OGJ forecasts that additions will be made to the SPR in 1993 averaging 41,000 b/d, boosting the total reserve to 590 million bbl at yearend.

Industry stocks are estimated at 1.055 billion bbl at yearend 1992. Crude stocks of 330 million bbl are projected to be unchanged at the end of 1993. A slight addition to petroleum product stocks is projected, moving up 5 million bbl to 730 million bbl at yearend 1993.

REFINING CAPACITY TIGHT

Stronger product demand increased refinery throughput and pushed utilization rates higher in 1992. But refinery profitability suffered because of a shrinking margin between product values and crude costs.

Crude oil runs to stills increased with demand, gaining 1% to an average 13.44 million b/d for 1992. Total input to stills was 13.65 million b/d.

However, refining capacity slipped 1.1% in 1992 to average 15.53 million b/d. The decrease in capacity is expected to continue as the cost of meeting new environmental regulations results in refinery shutdowns and capacity reductions.

Last year the increase in input coupled with the decline in capacity boosted the refinery utilization rate to 87.9%. This year, crude runs will increase 1.2% to 13.6 million b/d. Refining capacity is expected to slip again, to 15.4 million b/d, raising the utilization rate to 89.7%.

Last year refiners pushed more crude through U.S. refineries and lowered product imports. A large part of the drop in imports was due to lower residual fuel oil demand. Product imports fell 2.5% in 1992 and were down 15.1% in 1991.

This trend is expected to reverse this year. U.S. refineries have little spare capacity, and increased demand will result in increased product imports.

Crude and product prices fell in 1992. But the drop in product prices was sharper than for crude oil, reducing refining margins.

The average U.S. wellhead price of crude fell 2.1% in 1992 to an estimated $16.20/bbl, down from $16.54/bbl in 1991 and $20.03/bbl in 1990. The average landed cost of imported crude fell only 1.3% to $17.78/bbl.

The average pump price for unleaded gasoline slipped 1.4% to an estimated $1.124/gal. However the refiners' wholesale price of finished motor gasoline was down 5.1% in 1992 at 66.7cts/gal.

Increased state and local taxes, and increased retail margins, slowed the decline at the pump.

The wholesale price of No. 2 fuel oil also fell more sharply than crude oil, down 5.1% to average 59cts/gal in 1992.

Product demand grew in 1992, but there was more than sufficient supply throughout the year, and intense competition held product prices lower than the previous year.

Through the first 9 months of 1992 the estimated average refining cash operating margin was 85cts/bbl, down sharply from the $2.07/bbl average for the same period the year before.

The average refining margin for the year is expected to be even lower as refining activity generally slows in the latter months of the year. Average 1991 margins for the total year were $1.86/bbl.

Industry stocks have not been used as incremental additions to supply over the past 2 years. Instead, refiners have been adding to lean stock levels to match increases in demand. Last year refiners made a marginal addition to stocks. An estimated 20,000 b/d was added to total industry stocks in 1992. Refiners boosted stocks by 37,000 b/d in 1991.

OGJ expects a 20,000 b/d addition to total industry stocks in 1993. At yearend industry stocks will represent 61.8 days of supply at 1993 average demand levels. This will be down marginally from 62.3 days in 1992 and 62.7 days in 1991.

PRODUCT DEMAND FIRM

Accelerated economic growth, coupled with relatively stable product prices, will boost demand for all petroleum products in 1993. The increases will be partially offset by a drop in exports.

Last year demand fell for resid, naphtha jet fuel, LPG, and ethane, as well as exports.

Total U.S. product demand, including exports, is forecast at 18.04 million b/d for 1993, up 0.9%. This compares with total demand last year of 17.88 million b/d, also up 0.9% from the previous year.

Exports fell 6.1% last year to 940,000 b/d and will slip another 4.3% to average 900,000 b/d in 1993. Changing overseas product markets and increased demand in the U.S. are key reasons for the expected drop.

Projected domestic product demand of 17.14 million b/d will still be well below the record high. The peak year was 1978, when consumption reached 18.847 million b/d.

Price hikes caused demand to dip to 15.231 million b/d in 1983. When prices weakened, demand steadily increased to 17.325 million b/d in 1989.

A slowdown in economic activity and a sharp rise in prices in 1990 related to the Persian Gulf crisis resulted in a reduction in demand in 1990 and 1991.

Improved efficiency and switching to cheaper fuels have also had an impact on oil demand. The amount of oil energy consumed per dollar of GDP stood at 10,700 BTU/$ in 1973; it is expected to be 6,700 BTU/$ of GDP in 1993.

GASOLINE USE GAINS

Economic growth, a larger vehicle fleet, and an increase in miles driven are all expected to help boost motor gasoline demand again in 1993. Relatively steady pump prices will help, too.

The influence of these factors will be partially offset by continuing improvements in fleet efficiency. Some of this efficiency gain depends on the replacement of older vehicles with newer, more efficient vehicles. That, in turn, depends on the state of the economy.

A major unknown is the possibility of a big increase in the federal gasoline tax. Often proposed as a source of revenue for reducing the federal deficit, a substantial increase in the tax would lower gasoline demand.

OGJ projects 1993 motor gasoline demand at 7.29 million b/d, up 30,000 b/d from last year.

Last year, motor gasoline consumption moved up for the first time in 4 years, increasing 1% from 1991. Demand hit a recent high of 7.336 million b/d in 1988 and then fell for 3 consecutive years. The record for motor gasoline consumption was an average 7.412 million b/d in 1978.

Average miles driven per gallon increased from a modern low of 13.3 mpg in 1973 to 21.7 miles in 1991. The average fuel consumed per car per year fell from 771 gal in 1973 to 495 gal in 1991.

In recent years there has also been a resurgence in driving. Average miles driven per vehicle was 10,256 in 1973, fell to 9,141 in 1980, then climbed to 10,728 miles per car in 1991. The number of automobiles registered has increased from 121.6 million in 1980 to 145 million in 1990.

The Computer Petroleum Corporation (CPC) U.S. average pump price for self service unleaded motor gasoline was $1.081/gal the first week of 1992. The pump price slipped to $1.052/gal in mid-March and then moved up to a high of $1.185/gal the first week of June. Prices remained above $1.16/gal until mid-November when they started to slide, finishing the year at $1.115/gal. The price for the year averaged $1.131/gal, down 4.2% from 1991.

Motor gasoline prices are not expected to change markedly in 1993 unless there is a tax increase.

JET FUEL CHANGES

Jet fuel demand fell for the second consecutive year in 1992, declining 21,000 b/d to 1.45 million b/d. The decline was due to a drop of 27,000 b/d in naphtha jet fuel used by the military.

A gradual shift to kerosine jet fuel and spending cutbacks reduced military consumption of jet fuel. The military is shifting to kerosine jet fuel to insure adequate economical supply.

Part of the military decline may have shown up in the modest increase in 1992 demand for kerosine jet fuel, which increased by 6,000 b/d to 1.302 million b/d. Kerosine jet fuel has been used primarily by commercial aircraft, and shifts in demand reflect economic conditions and changes in commercial aircraft fuel efficiency.

Jet fuel demand grew for 9 straight years from 1.007 million b/d in 1981 to 1.522 million b/d in 1990. Demand fell to 1.471 million b/d in 1992 due to the recession; demand for kerosine jet fuel dipped last year to 1.296 million b/d.

Demand this year is forecast to increase modestly, gaining 20,000 b/d to 1.47 million b/d. The increase will be in kerosine jet fuel for commercial aircraft, which will increase 23,000 b/d to 1.325 million b/d. Military demand for naphtha jet fuel will decline to 145,000 b/d.

Key operating statistics show a substantial improvement in airline activity in 1992 as the U.S. economy picked up steam.

Total available seat-miles flown by U.S. scheduled airlines for the first 11 months of 1992 was up 4.7% from the year before. Total passenger enplanements gained 4.2% over the same period.

Domestic seat-miles flown were up 1.9%, and domestic passenger enplanements up 3.9%. International seat-miles flown moved up 13.8%, and international passenger enplanements were up 7.4% over the same period.

Air freight revenue-ton-miles flown for the first 10 months of 1992 increased 7.3% from the same period of 1991. Domestic freight operations posted an increase of 6.9%, and international operations increased 7.7%.

Continued improvement in the economy will boost traffic volume in 1993, but fuel consumption increases will be partially offset by improved fuel efficiency.

DISTILLATE RECOVERS

More-robust economic growth and normal weather during the heating seasons are expected to boost demand for distillate fuel oil in 1993, the second consecutive year of increase.

Demand is projected to grow by 2.3% this year, to 3.09 million b/d. Last year demand gained 3.4% due to the economic recovery and an increase in heating oil demand.

Demand for distillate peaked in 1978 at 3.432 million b/d. Conservation and fuel switching caused by higher prices dropped demand to 2.671 million b/d in 1982. Demand recovered to 3.157 million b/d in 1989, then the economic downturn depressed use in 1990 and 1991.

Last year, cooler weather boosted residential and commercial demand. And relatively low prices for heating oil slowed the rate of conversion to natural gas. The improvement in the economy had the biggest impact, boosting industrial, railroad, and highway transport demand for distillate.

This year, normal weather during the heating season will help sustain residential and commercial demand. Constant heating oil prices coupled with higher natural gas prices will also help firm fuel oil demand.

The improvement in the economy will mean an increase in the rail and highway transport of goods. Both rail and highway demand for distillate are expected to grow substantially in 1993. Modest prices will also help boost industrial and electric utility demand in 1993.

The average wholesale price of No. 2 fuel oil fell 5.1% in 1992 to 59cts/gal. This followed a drop of 10.8% in 1991 as prices retreated from the inflated levels during the Persian Gulf crisis.

Crude oil prices could be weaker in 1993, and the lower feedstock cost could lead to a lower price for distillate. But that downward pressure will be at least partially offset by increased demand.

RESID TREND REVERSES

Demand for residual fuel oil is sensitive to the prices of natural gas and coal. Demand for resid has been weak in recent years as intense competition from natural gas displaced resid in the industrial and utility markets.

Despite economic recovery, demand for resid fell 5.9% last year to 1.09 million b/d. It was the fourth consecutive year of decline, caused primarily by a drop in demand by electric utilities. Demand for resid reached 3.071 million b/d in 1977.

Reversing the recent trend, demand for residual fuel oil is expected to gain 30,000 b/d to average 1.12 million b/d for 1993. Improved economic conditions and a competitive price are expected to boost demand in the industrial and electric utility sectors.

Demand for electrical power is expected to continue its growth in 1993. The increase in resid demand will be for fuel to meet peak periods of electrical demand. And increases in natural gas demand may boost the price, making resid more competitive.

Transportation demand for resid is also expected to grow this year due to shipping activity associated with the increase in crude oil and petroleum product imports.

Demand for LPG and ethane will increase 1.2% in 1993 to 1.7 million b/d. Last year demand averaged 1.68 million b/d, down 0.5% from 1991. Demand in 1990 fell to 1.556 million b/d due to abnormally warm weather during the heating season and a continued slump in the chemical industry.

With more-normal weather during the past 2 years, residential and commercial consumption is back up. Chemical demand also recovered, as industry output increased 4.2% in 1992.

Demand for all other petroleum products as a group is expected to increase 1.2% in 1993 to 2.47 million b/d. Last year demand jumped 6.7% to 2.44 million b/d as the economy recovered. Demand for other products is sensitive to changes in the economy, particularly the chemical industry and some parts of the construction industry.

Most of the improvement this year will be from increases in demand for asphalt and for petrochemical feedstocks. Demand for lubricants will also grow.

This "all other petroleum products" category will represent 14.4% of total domestic demand in 1993.

NATURAL GAS BRIGHTER

A combination of factors is expected to boost demand for natural gas in all of the major economic sectors in 1993.

The growth in the economy and more-normal weather will help. Conversions to natural gas and the preference for natural gas in new homes will contribute to growth in the residential and commercial sectors. Industrial demand will move up as a result of economic growth and increases in non-utility power generation (co-generation). Electric utility consumption of natural gas will also increase.

Natural gas may face stronger competition from fuel oil in 1993 if gas prices move up because of increased demand. But natural gas should retain its competitive advantage over heavy fuel oil for power generation.

Hydroelectric power production is expected to rebound in 1993, and some growth is expected in nuclear output. But this will not be sufficient to meet all of the additional fuel requirements. There will be modest growth in coal consumption, but it is constrained for environmental reasons. The resulting gap in electric power fuel requirements for 1993 will be filled by natural gas.

The Journal forecasts total U.S. natural gas consumption will increase 3.8% in 1993 to 20.58 tcf. As the economic recovery began to take shape last year, consumption gained 4.1% to 19.83 tcf, posting increases in all major sectors.

Residential demand increased 2.8%, commercial demand was up 2.4%, and electric utility demand moved up 2.6%. The sharpest increase was in industrial demand, which was up 5.9%. The industry sector consumed 38.6% of the total in 1992. Consumption of natural gas fell from 20.241 tcf in 1979 to 16.221 tcf in 1986 but has climbed since then as a result of lower prices and industry restructuring that made natural gas more competitive.

Demand in 1993 will be up 4.359 tcf from 1986, and it will have more than recovered all of the decline that occurred over the 1979-86 period.

Natural gas consumption is expected to rise significantly later in the 1990s. The continuing increase in demand for electrical power will be one of the driving forces behind this future growth.

Nuclear power capacity has reached a peak, and hydroelectric power output is also limited by existing capacity. Environmental concerns may restrain the rate of growth in coal consumption.

Environmental advantages and domestic availability make natural gas an attractive fuel source for expanded power needs.

U.S. gas production is expected to move up along with demand in 1993 but at a slower rate. Marketed natural gas production will gain 2.8% to 19.4 tcf. Last year domestic natural gas production increased 1.9% to 18.875 tcf, the highest level since 1981.

Imports of natural gas jumped 18.2% to 2.095 tcf last year. Imports from Canada increased 18.7% to 2.03 tcf. LNG imports from Algeria moved up marginally to an estimated 65 bcf. LNG imports were 63 bcf in 1991 and 84 bcf in 1990. This year total gas imports are expected to increase by 9.8% to 2.3 tcf. Canadian imports will increase 9.9% to 2.23 tcf. LNG imports are forecast at 70 bcf.

The average U.S. wellhead price of natural gas was estimated at $1.77/Mcf in 1992, an increase of 7.9% from $1.64/Mcf in 1991. Average gas prices were fairly constant for 4 years through 1991. A sharp increase in imports coupled with slow demand growth made excess supply available and kept prices low.

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. Increased consumption and some slowing of the rate of import growth is expected to help natural gas prices firm up again this year.

The average wellhead price will gain about 5.6%, depending on the rate of economic growth, the pace of Canadian imports, and the weather.

Copyright 1993 Oil & Gas Journal. All Rights Reserved.