Demand Growth To Continue For Oil, Resume For Gas This Year In The U.S.

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 economic growth and falling prices.

Economic growth, although slower than it was last year, will nevertheless remain strong.

Worldwide petroleum supply will rise, suppressing oil prices. Natural gas prices are also expected to fall in response to the decline in oil prices and competitive pressure from other fuels.

Total U.S. energy consumption will grow less than the economy will due to improvement in energy efficiency.

U.S. petroleum product demand is projected to move up 1.2% in 1998 to average 18.78 million b/d, the second highest level on record. And natural gas consumption will rise 1.6% to a record 22.24 tcf after a slight decline in 1997.

Despite elevated oil prices in 1996 and 1997, U.S. crude oil output continued to slide. Production slipped 1% in 1997 to average 6.4 million b/d. The Oil & Gas Journal projects a 0.8% drop in crude and condensate production this year to an average 6.35 million b/d. U.S. production has been falling since 1985, except for a modest increase in 1991 related to the Persian Gulf War.

New technology and a small increase in drilling activity have slowed the decline rate in U.S. crude and condensate production. Output fell only 65,000 b/d in 1997 and is expected to fall 50,000 b/d in 1998. The average decline rate in 1985-96 was 227,800 b/d.

Sliding oil and natural gas prices late in 1997 and into 1998 will reduce U.S. drilling activity this year. Last year, the average number of rotary rigs working in the U.S. jumped 21.5% in response to rising wellhead revenues.

As U.S. oil production falls and demand rises, petroleum imports will increase. Total imports are expected to reach a record 10.1 million b/d. Import dependency will slip to 53.8% of domestic demand from the record high 53.9% of 1997.

U.S. refineries will continue to operate at close to capacity rates. Refiners will boost capacity at existing facilities to meet the increase in product demand. The average capacity utilization rate will decline to 94.2% from 94.4% last year. Product imports will move up marginally. The tight capacity situation makes U.S. product supply vulnerable to unforeseen refinery shutdowns.

The economy

Real gross domestic product (GDP) moved up an estimated 3.7% in 1997 after a 2.8% rise in 1996. OGJ projects growth in 1998 of 2%.

This year will be the seventh consecutive year of economic growth, following a short economic recession that started late in 1990. GDP fell 0.7% in 1991, ending a string of eight consecutive years of growth.

Hampering growth this year will be U.S. export reductions related to financial problems in Asia and labor shortages, which will tend to raise costs and possibly slow expansion plans and investments.

Some of the major economic indicators are expected to post mixed results in 1998. Industrial production, a key component of both economic activity and energy demand, is projected to move up 3.3% this year vs. 4.6% in 1997.

New car sales are projected to fall to 8.2 million units in 1998 from 8.3 million last year and 8.5 million in 1996. Housing starts are forecast to slip to 1.41 million units from 1.46 million units in 1997. Interest rates are expected to increase marginally in 1998.

Little inflation is expected in 1998. The consumer price index will rise 2.4%, the same as last year and below the 2.9% of 1996. The GDP price deflator is expected to move up 2.1%, compared with 2.0% in 1997 and 3.2% in 1996. The GDP deflator is a measure of inflation for all goods and services produced in the U.S. economy.

The unemployment rate is projected to slip to 4.9% from 5% in 1997 and 5.4% in 1996.

Total energy consumption

Economic growth will boost total energy consumption in 1998, including consumption of petroleum and natural gas. Increased manufacturing activity and a higher level of electric power consumption are major factors in the increase.

Energy consumption increased an estimated 0.9% in 1997 to 90.75 quadrillion BTU (quads). Total energy demand is projected to increase 1.3% in 1998 to 91.95 quads.

The long running trend of improvement in the efficiency of U.S. energy consumption will continue. Energy efficiency, measured as energy consumption per constant dollar of GDP, has improved steadily since 1970. During periods of lower energy prices the rate of improvement slows due to the reduced financial incentive for investment to conserve energy.

In 1997 the U.S. economy consumed an estimated 12,630 BTU of energy for every dollar of real GDP. This is down 36% from 19,800 BTU/$ in 1970. Over that period GDP increased 112.1% while energy consumption increased only 35.2%. In 1998, relative energy consumption is expected to fall again to 12,540 BTU/$.

Energy sources

Consumption levels for all primary energy sources except hydroelectric power are expected to increase in 1998. Growth rates for individual primary fuels will vary with cost and other output constraints.

Oil energy consumption is projected to increase 1.2% in 1998 to 36.8 quads after a 1.4% increase in 1997. Strong economic growth was the major reason for the increase in oil consumption last year.

Petroleum's share of the energy market will be 40.1% in 1998, the same as last year but up from 39.9% in 1996. Over the past 2 decades oil's share of the market has gyrated, moving with changes in oil prices.

Oil's share of the U.S. energy market fell from 48.7% in 1977 to 41.8% in 1985, primarily due to rising oil prices. In 1986 a sharp drop in prices helped boost oil consumption to 43.4% of the primary energy market. Over the past 10 years competition from other fuels and environmental concerns have eroded oil's market share.

Natural gas energy consumption is expected to increase 1.6% in 1998 to 22.86 quads following a drop of 0.1% last year to 22.5 quads. Last year sharply higher natural gas prices slowed consumption.

This year's consumption of energy from natural gas will be at the highest level since 1972, stimulated by industrial and electric utility use. Deregulation has helped improve the efficiency of the natural gas industry and improved its competitive position in the energy industry. However competition from coal and hydroelectric power in the electric utility sector slows the rate of growth. The natural gas share of the energy market is expected to move up in 1998 to 24.9% from 24.8%. It was 25% in 1996.

Oil and natural gas will continue to dominate the energy market. Their combined market share will rise to 65% in 1998 from 64.9% in 1997 and 1996. The market share peak for the two fuels was 77.7% in 1972.

Increased demand for electrical power is the major reason that energy consumption is expected to rise steadily in the future.

Energy from hydroelectric power increased in 1997 by 4.8% to 4.12 quads because of high rainfall and snow levels. Hydro energy consumption will slip 2.4% to 4.02 quads in 1998. Hydro output is physically limited to existing levels of installed capacity. The hydro share of the energy market will slide to 4.4% in 1998 from 4.5% last year.

Energy from nuclear power dipped 3.6% in 1997 to 6.91 quads. Several New England nuclear power units were shut down for maintenance. Nuclear power output is expected to rise by 2.3% in 1998 to 7.07 quads.

The nuclear power share of the energy market will increase to 7.7% in 1998 from 7.6% last year. Nuclear represented 8% of the market in 1996.

Even though nuclear power capacity has peaked, growth in nuclear power output is possible, primarily through more-efficient use of existing facilities and increased capacity utilization rates. In the future that will be partially offset by the shutdown of older facilities.

The number of operable nuclear power units peaked at 112 in the summer of 1990, slipped to 109 in 1992, then increased to 110 in 1996, where it remains. Nuclear power capacity reached 100.49 million kw in August 1990 and slipped to 97.88 million kw for the first quarter of 1993 before climbing again. Since February 1996 it has held steady at 100.685 million kw.

The nuclear capacity utilization rate jumped from 62.2% in 1989 to 77.4% in 1995. It then slipped to 76.4% in 1996 and an estimated 73.1% last year. This year the utilization rate is expected to be closer to the 1995-96 level.

Consumption of energy from coal, mainly for power generation, increased 1.7% in 1997 to 20.84 quads. Coal consumption may have been constrained in 1997 by transportation problems with several major railroads. Coal energy consumption is expected to move up again this year as the growth in power output from nuclear and hydro facilities slows and electric power consumption rises. Coal energy consumption is projected to move up 1.5% to 21.15 quads. Coal's share of the energy market will be at 23% in 1998, the same as last year but up from 22.8% in 1996.

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

Oil supply

The projected level of U.S. crude and condensate production this year, 6.35 million b/d, represents a decline of 2.621 million b/d from the recent high of 8.971 million b/d in 1985-a drop of 29.2% in 13 years. Before the decline, U.S. production had risen by 419,000 b/d during 1979-85.

Although the Baker Hughes Inc. count of active rotary rigs rose to an average of 945 in 1997, drilling activity remains below levels needed to stabilize production. The rig count averaged 778 in 1996 and 724 in 1995. The modern record low of 717 rigs was posted in 1992.

OGJ is forecasting a drop in the U.S. rig count this year to 900 active units, as declines in the prices of oil and natural gas slow investments and costs rise.

Natural gas liquids (NGL) output is expected to increase 15,000 b/d in 1998 to average 1.870 million b/d. NGL output has been rising since 1989 when it averaged 1.546 million b/d. Increased natural gas production, deeper extraction, and rising prices have helped boost output.

Starting in 1993 the U.S. Energy Information Administration (EIA) started including fuel ethanol and oxygenate production from methyl tertiary butyl ether (MTBE) plants as a part 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 about 335,000 b/d in 1997. It is expected to move up to 340,000 b/d this year.

OGJ projects total liquids production of 8.56 million b/d for 1998, down 0.3% from last year and 19.5% from the recent high of 10.636 million b/d in 1985.

North Slope production continued to slide in 1997, and total Alaskan output fell 6% to an estimated annual average of 1.31 million b/d. That followed a 6.1% drop the year before. Output in 1998 is expected to slide 3.8% to an average 1.26 million b/d.

Lower 48 production averaged an estimated 5.09 million b/d in 1997, up from 5.071 million b/d in 1996.

In 1997 production in the major Lower-48 producing states were Texas 1.625 million b/d, down 3,000 b/d; California 940,000 b/d, down 8,000 b/d; Oklahoma 228,000 b/d, down 5,000 b/d; Wyoming 196,000 b/d, down 5,000 b/d; New Mexico 176,000 b/d, no change; and Kansas 115,000 b/d, up 1,000 b/d. Louisiana made up for much of the decline in the other states with production averaging 1.280 million b/d, up 41,000 b/d.

Lower 48 production is projected to remain constant in 1998 at 5.09 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 a record high 10 million b/d last year, up 522,000 b/d from the year before. The need to rebuild industry stocks accounts for some of last year's increase.

All of the 1997 import gain was crude oil, for which imports moved up 7.2% to average a record high 8.05 million b/d. Crude imports are expected to increase to 8.12 million b/d this year.

Product imports slipped last year to an average of 1.95 million b/d vs. 1.97 million b/d in 1996. Tight refining capacity in the U.S. had been expected to lead to much higher product imports. But refiners have managed to add refining capacity and keep pace with demand. As long as capacity is adequate, refiners prefer to import crude oil.

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 sharply lowered inventories.

Product imports are forecast to increase marginally this year to an average 1.98 million b/d.

No crude imports are expected for the Strategic Petroleum Reserve (SPR), last additions to which came in June 1994. Total SPR crude stocks have been reduced to 563 million bbl from the high of 592 million bbl in February 1996. Further withdrawals are expected this year.

Stocks

Industry stocks were estimated at 992 million bbl at yearend 1997, compared with 941 million bbl at yearend 1996, which were close to operating minimums. Total industry stocks were 971 million bbl at yearend 1995 and 1.061 billion bbl at yearend 1994.

The stock increase last year averaged about 140,000 b/d after the 1996 decline of 82,000 b/d.

In prior years stock adjustments have fluctuated, increasing 37,000 b/d in 1991, falling 79,000 b/d in 1992, increasing 136,000 b/d in 1993 and 4,000 b/d in 1994, then falling 247,000 b/d in 1995.

At yearend 1996 total industry stocks represented 51.4 days of supply, which is very low. At yearend 1994 stocks amounted to 59.9 days of supply, and at yearend 1981 stocks were as high as 78 days of supply. Yearend stocks averaged 76 days of supply in the 1960s and 67 days in the 1970s and 1980s.

OGJ projects a modest increase in industry stocks in 1998 to a yearend level of 995 million bbl. Stock levels will be maintained at close to current levels to ensure the ability to meet higher levels of demand without supply disruptions and major price spikes. Crude stocks are expected to remain at 305 million bbl, the same as at yearend 1997. Product stocks are projected to finish the year at 690 million bbl, up from 687 million bbl at yearend 1997.

Refining

Refineries were run at close to full capacity in 1997. And average U.S. refining capacity was up from a year earlier.

Crude runs to stills increased 2.8% to average an estimated 14.59 million b/d. Total input to stills moved up 2.8% to average 14.74 million b/d.

Average refining capacity increased to 15.62 million b/d from 15.239 million b/d in 1996. Input to stills increased slightly faster than capacity, boosting the refinery capacity utilization rate to an average of 94.4% from 94.1% in 1996. That is very close to running at full sustainable capacity since some excess capacity is required for maintenance downtime and other contingencies.

Crude runs are projected to move up 1% in 1998 to average 14.74 million b/d. Total input to stills will increase to an average 14.89 million b/d. Capacity is expected to continue to increase and average 15.8 million b/d. With the added capacity the utilization rate is expected to slip to 94.2% for the year.

Refining margins and prices

Rising crude oil costs reduced refining margins early in 1997. For the first quarter of the year refining margins were negative.

As the year progressed increased product demand, high refinery utilization rates, and falling crude prices improved margins.

For the first 9 months of 1997 the Gulf Coast cash operating margin as calculated by Wright Killen & Co. averaged 96¢/bbl, up from 57¢/bbl for the same period of 1996. Margins were particularly strong in the third quarter, averaging $1.79/bbl. Data were not available for the latter 3 months of the year, when crude costs slipped and product demand remained strong.

It is likely that the average refining margin for the year will be higher than the 71¢/bbl for 1996. Refining margins averaged 33¢/bbl for 1995, 88¢/bbl in 1994, and $1.39/bbl in 1993.

Both crude oil and refined product prices fell in 1997. The estimated average U.S. wellhead price of crude oil slipped 7.1% year to $17.15/bbl, following 2 consecutive years of rising prices. The wellhead price increased 26.3% in 1996 to average $18.46/bbl. The wellhead crude oil price averaged $20.03/bbl in 1990 then fell steadily to $13.19/bbl in 1994 before rising again in 1995 and 1996.

The average landed cost of crude oil imports slipped last year to an estimated $18.90/bbl from $20.31/bbl in 1996.

The average pump price for unleaded gasoline moved up 0.2% in 1997 to an estimated average of $1.234/gal. This followed a 7.3% increase in 1996 to $1.231/gal. The price last year was the highest since 1983. The refiners' wholesale price of finished motor gasoline slipped to an estimated average 68¢/gal in 1997 from 71.3¢/gal the year before.

Total gasoline taxes at the pump averaged 39.7¢/gal in 1997, up from 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 6% to an estimated 60¢/gal. This followed a 25% increase in 1996 to 63.9¢/gal. The price was 51.1¢/gal in 1995.

Oil demand

Consumption is projected to move up for all major products in 1998.

OGJ projects total U.S. product demand, including exports, of 19.75 million b/d for 1998 vs. 19.54 million b/d in 1997.

Exports averaged 980,000 b/d, compared with 981,000 b/d in 1996. Exports are expected to slip to an average 970,000 b/d in 1998.

The 18.78 million b/d of U.S. petroleum product demand projected for 1998 will be the seventh consecutive yearly increase. The record high demand level was 18.847 million b/d in 1978.

After that peak year demand fell sharply for the next 5 years, reaching a recent low of 15.231 million b/d in 1983. Demand then climbed steadily to 17.325 million b/d in 1989. An economic recession and a sharp rise in oil prices due to the Persian Gulf war reduced demand in 1990 and 1991.

The subsequent economic expansion has boosted petroleum product consumption for the past 6 years.

Petroleum product demand has been rising even though the amount of oil energy consumed per dollar of GDP has been falling since 1973. Oil energy consumed per dollar of GDP fell from 8,900 BTU/$ of GDP in 1973 to an estimated 5,100 BTU/$ of GDP in 1997, a drop of 43%. The ratio is projected to fall to 5,000 BTU/$ of GDP in 1998.

Motor gasoline

Motor gasoline demand is projected to move up in 1998 due to an increase in 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.

This could be partially offset if gasoline pump prices rise. Increased demand and the higher cost of producing reformulated gasoline could boost pump prices. However, it is more likely that crude oil prices will be somewhat lower and that pump prices slip or remain close to 1997 levels. Falling or steady pump prices will also stimulate demand.

Average vehicle mileage for the U.S. fleet increased from 13.3 mpg in 1973 to 21.69 mpg in 1991.

Consumer preference for large vehicles reversed the trend in 1992, when the fleet averaged 21.68 mpg, then to 21.04 mpg in 1993. More recently, improvement in vehicle fuel use efficiency has resumed, with the fleet averaging 22.24 mpg in 1994 and 22.56 mpg in 1995.

In the future fleet fuel efficiency improvements will depend upon the rate of replacement of old and inefficient vehicles.

Also contributing to gasoline demand is the increase in average miles driven per vehicle, which has been at or close to record levels for the last 4 years for which data are available. Average driving rose from 9,141 miles/vehicle in 1980 to 11,100 miles/vehicle in 1992 and a record 11,760 miles/vehicle in 1993, then eased to 11,210 miles/vehicle in 1994 and 11,329 miles/vehicle in 1995.

OGJ is projecting 1998 motor gasoline demand at a record high 8.08 million b/d, compared with 8.005 million b/d last year. This will be the seventh consecutive year of increased motor gasoline demand and the sixth consecutive record.

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 sharply to 6.539 million b/d in 1983. Since that time, lower gasoline prices, steady economic growth, a growing vehicle fleet, and a steady rise in miles driven per vehicle, have more than offset gains in vehicle fuel efficiency.

The total number of automobile registrations increased from 121.6 million in 1980 to 147.2 million in 1994, an increase of 21%. Truck registrations moved up from 33.7 million in 1980 to 47.6 million in 1994, an increase of 41.6%.

Relatively low motor gasoline prices have also contributed to the increase in fuel consumption in recent years. Last year the estimated average pump price for unleaded motor gasoline moved up to $1.234/gal from $1.231/gal in 1996. The 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. Even the price in 1996 and 1997 was well below the record high of $1.378/gal in 1981.

Even though the pump price moved up in 1996 and 1997, demand increased. Adjusted for inflation, the price remains well below its level of a decade earlier. The inflation-adjusted price was close to record lows during 1991-95. The stimulus to demand of this extremely low inflation-adjusted price more than offsets the effect on demand of efficiency gains.

Jet fuel

Demand for jet fuel increased 1.7% last year to an estimated 1.605 million b/d. Adding to the stimulus of in increased economic activity was competition in the airline industry, which kept fares relatively low.

Total revenue-passenger seat-miles flown by U.S. scheduled airlines and total passenger enplanements were up in 1997 from the year before. Air freight revenue-ton-miles also were up.

Jet fuel consumption had increased from 1.007 million b/d in 1981 to 1.522 million b/d in 1990 due to expanding commercial airline business. Demand then fell as the economy moved into recession and the military cut consumption, averaging 1.454 million b/d in 1992.

When the economy recovered demand for jet fuel moved up to 1.578 million b/d in 1996 and 1.605 million b/d last year.

A further increase in economic activity is expected to boost jet fuel demand this year to 1.62 million b/d. With increased economic activity both passenger-miles and freight ton-miles will increase.

Distillate fuel

Demand for distillate fuel oil is projected to increase 1.2% this year to a record 3.46 million b/d. This follows a 1.6% gain in demand last year to 3.42 million b/d.

The increase this year, like last year, will primarily be due to the improvement in the economy and increased transportation demand.

This will be the seventh consecutive yearly increase in distillate demand, which reached its previous peak in 1978 at 3.432 million b/d. Higher prices, conservation, and fuel-switching pulled demand to 2.671 million b/d in 1982. Increases since then were interrupted only during the recession of 1990-91.

Last year, strong economic activity boosted industrial, highway transport, and railroad demand for distillate. Price competition also favored distillate over natural gas where consumers had the choice.

Residual fuel oil

OGJ is projecting that demand for residual fuel will increase 35,000 b/d in 1998 and average 830,000 b/d. Resid demand fell 53,000 b/d last year to an estimated average of 796,000 b/d as high oil prices early in the year hurt the fuel in competition with other fuels.

Resid demand has been sliding for almost 20 years. The peak year for resid consumption was 1977 at 3.071 million b/d. Nuclear power, coal, and natural gas have displaced resid in electric utility and industrial markets.

Reduced prices this year will help resid compete with the other fuels. An increase in demand is expected to come from the industrial and utility sectors along with some increase in transport demand. Close to normal winter weather will also help boost demand.

Increasing imports could raise demand for bunker fuels for tankers. High prices for competing natural gas would also help the demand for resid.

Other petroleum products

Demand for LPG and ethane is projected to move up 1.3% in 1998 to average 2.02 million b/d. Last year demand averaged and estimated 1.995 million b/d, down from the record high 2.012 million b/d in 1996.

High prices and warm weather early in the year reduced demand last year.

Demand for all of the other petroleum products as a group is projected to increase 1.1% in 1998 to 2.77 million b/d. Last year demand for all other petroleum products increased 4.8% to 2.53 million b/d.

This miscellaneous petroleum product category will represent 14.7% of total U.S. 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. Increase are also expected in petrochemical feedstocks as the economy expands.

Natural gas

The price competition that slowed natural gas demand in 1997 is expected to abate this year.

A gas price slide that started late in 1997 and continued into 1998 is expected to help natural gas in the highly competitive industrial and electric utility markets.

Gas demand

The 22.24 tcf U.S. consumption level predicted for this year will top the previous gas demand record of 22.1 tcf set in 1972.

Last year, with prices elevated, natural gas consumption fell 0.3% to 21.9 tcf. There was a sharp drop in residential consumption due to the warmer than normal winter weather early in the year and much higher prices, which encouraged conservation. Residential consumption fell an estimated 4.2% and commercial demand dropped 1%.

Increases in industrial and electric utility demand last year were not sufficient to offset the sharp drops in the other sectors. Industrial demand increased an estimated 1.8%, and electric utility demand was up 4.3%. Utility demand rose as gas-fired power replaced nuclear power declines resulting from maintenance shutdowns in some New England plants. Industrial demand includes gas used for nonutility generation of electrical power.

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 federal restrictions on gas use. Lower prices and industry restructuring made natural gas more competitive in subsequent years, and demand has risen steadily since 1986.

Further increases are likely for natural gas consumption, particularly for electric power generation. Nuclear power capacity has reached a peak, and additional output is limited to increased capacity utilization. Hydroelectric power output is limited by existing capacity.

In the electricity market, gas competes mainly with oil products in generators used intermittently to satisfy peak levels of electricity demand. It also has become the preferred fuel for new power generating capacity.

Gas supply

U.S. gas production remained level in 1997 after increasing for several years. It is expected to move up again this year along with the increase in demand

Marketed natural gas production will move up 1.2% in 1998 to 19.99 tcf. Last year U.S. gas production totaled an estimated 19.75 tcf, the same as in 1996 and the highest level of domestic production since 1981.

Imports have moved up sharply to fill the gap between U.S. output and consumption. However the increase in imports was relatively small in 1997 because of the slip in demand.

Last year natural gas imports increased 2.3% to 3.005 tcf. Imports from Canada increased 1.5% to 2.926 tcf. LNG imports from Algeria and the United Arab Emirates moved up to 65 bcf from 40 bcf the year before. Imports from Mexico remained at 14 bcf. Total imports were 13.6% of new supply and 13.7% of consumption.

In 1998 total gas imports are expected to move up 3.5% to 3.11 tcf. Canadian imports will increase 3.4% to 3.025 tcf as pipeline capacity expands. LNG imports are projected at 75 bcf and imports from Mexico at 14 bcf. Imports this year will represent 13.9% of new supply and 14% of total consumption.

The price of natural gas was up sharply in late 1996 and early 1997 but slipped later last year. Average prices for the year were up slightly from 1996. Prices had increased sharply in 1996 after falling in 1994 and 1995.

Last year the average U.S. wellhead price of natural gas increased to an estimated $2.35/Mcf from $2.25/Mcf in 1996, $1.59/Mcf in 1995, $1.88/Mcf in 1994, and $2.04/Mcf in 1993.

Natural gas prices were relatively steady during 1987-92, with annual averages varying in the range of $1.64/Mcf to $1.74/Mcf. Over that period imports increased rapidly while total consumption growth was relatively slow.

The price jumped to $2.04/Mcf in 1993 as demand surged to 20.279 tcf. That was the first time demand was above 20 tcf since 1979.

The average U.S. wellhead price for natural gas is expected to dip 8.5% to $2.15/Mcf for 1998.