Natural Gas Sector Improving, Demand Up, Finds Report

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The domestic natural gas industry is climbing out of a cyclical pricing and deliverability trough and is expected to benefit from increased demand, according to a report issued by Rauscher Pierce Refsnes Inc., a Dallas investment banking firm.

However, world crude oil prices are expected to remain volatile, fluctuating between $15 and $18 per 42-gallon barrel, the firm said in its March 16 "Energy Investment Strategy" report.

"We believe a cyclical trough has been passed in natural gas pricing and surplus delivery," the Rauscher Pierce Refsnes analysts said.

Demand for natural gas in 1988 could increase by up to 2.5 percent from the 1987 level, the analysts said, due to more normal weather, increased demand in the basic industrial sector and prices below those of other fuels.

The industrial sector's production levels are expected to remain high because the weaker U.S. dollar fuels export sales, the analysts said.

Beyond 1989, "the ability of annual natural gas demand to move significantly above 17 trillion cubic feet will depend upon the successful development of utility and cogeneration markets," they said.

Natural gas deliverability is expected to decline by 7.4 percent in 1988 and by 8.1 percent in 1989, the Rauscher Pierce Refsnes analysts said, with a balance struck between natural gas supply and demand during the winter of 1988-89.

The forecast decline in natural gas deliverability would be a direct result of lower reserve additions made in the past year, they said. Natural gas reserve additions totaled 5 trillion cubic feet in 1987, down from 4.8 trillion cubic feet in 1986 and down from a peak of 9.2 trillion cubic feet in 1984. Reserve additions fell as drilling activity was reduced or refocused, the analysts said.

The analysts estimated deliverability dropped 3.1 percent to 18.9 trillion cubic feet in 1987, following a decline of 3.7 percent in 1986.

World crude oil prices are expected to bottom out in the second quarter at $15 per barrel, the analysts said.

"We do not believe the odds favor a major price break of $10 to $12 per barrel because OPEC (the Organization of Petroleum Exporting Countries) has shown an ability to restrain production when faced with a crisis," the Rauscher Pierce Refsnes analysts said. …