Tight U.S. gas supplies seen for this winter

U.S. gas supplies will be tight next winter, with working gas inventories peaking Nov. 1 at about 2.8 tcf despite unusually high rates of storage fill.

Even at that, there's not much room for error.

So concludes Petral Worldwide Inc. (PWI), Houston, from a review of U.S. gas market near-term fundamentals.

"The practical limits of the natural gas industry's ability to rebuild inventories will be tested this year," PWI Pres. Daniel L. Lippe said.

After starting with record low stocks at the end of March, U.S. gas storage operators in second quarter 1996 boosted working gas volumes by about 700 bcf. Yet inventories of working gas by mid-June still were less than 1.2 tcf, compared with historic levels of about 2.2 tcf at the end of June.

Lippe estimates suppliers must rebuild gas stocks at rates 15-18% greater than average through October 1996 if total gas in storage is to reach 2.8 tcf by Nov. 1. That would require net working gas inventories to increase 12 bcfd through August, more than 11 bcfd in September, and about 6 bcfd through October. All the monthly average injection rates that Lippe says are needed to restore gas stocks to 2.8 tcf would easily exceed those of the previous 3 years.

Lippe says the gas stocks deficit is greatest in the eastern U.S. The burden of rebuilding gas inventories in the East will fall mostly on fields in Louisiana and Texas, where operators will be forced to produce wells at sustained levels near their maximum capabilities.

Supply/demand outlooks

Lippe reckons imports-mostly from Canada-can contribute maximum volumes in third quarter 1996 of a little more than 8 bcfd. That would equal import volumes reported in first quarter 1996 but surpass the third quarter record of nearly 7.5 bcfd set last year.

Lippe predicts U.S. gas wellhead production in third quarter this year will average 53-54 bcfd, then jump to about 55 bcfd in November and 56 bcfd in December. In the past 3 years, maximum U.S. gas well output in third quarter reached only about 53.9 bcfd, while production in November and December attained only about 54.5 bcfd.

At the expected rates of production, third quarter gas well output in the U.S. would exceed that of first quarter 1996. Third quarter production since 1992 has averaged 2-4% less than first quarter output and was nearly 10% less than first quarter as recently as 1991.

On the demand side, Lippe forecasts third quarter consumption on boiler fuel markets at about 38 bcfd, down slightly from a year earlier. Lippe estimates industrial gas demand in third quarter will be 2-2.5% greater than in third quarter 1995, while third quarter demand among electric utilities should be about 1 bcfd less than last year. Residential and commercial gas demand in third quarter likely will average slightly more than last year at about 8.3 bcfd.

Lippe says peak utility demand in third quarter is a wild card. Should tight U.S. markets result in higher than expected gas prices, utilities will be tempted to dump supplies of low-cost gas from storage onto domestic markets wherever it is possible to generate electrical power with lower cost alternative fuels.