Higher Natural Gas Prices May Help Sustain Higher Usage

Article excerpt

There has been an overshadowing concern about higher natural gas prices, which producers direly need, eventually causing a decline in consumption that could negate higher prices.

It's a price-driven impetus for conservation, a variable of supply and demand.

And the cycle has been the bane of oil and gas producers' existence for all time.

But there is a brighter forecast regarding the cycle that has not been widely recognized: while wellhead prices to producers will rise substantially, end-user prices will climb at a much slower pace. That, it's argued, will help sustain higher usage.

Wellhead gas prices are predicted by the National Energy Research Associates Inc., based in White Plains, N.Y., to grow by $1.17 per thousand cubic feet from 1993-2000 while end-user prices will rise by slightly less than $1.

The margin between wellhead and end-user gas prices is closing, analysts maintain, because of competition in transportation and distribution costs. That trend is a direct result of open access and common carrier pipeline regulation at the federal level that began in about 1985, and is anticipated to continue.

That margin, which is the profit realized mostly by pipelines and gas utilities, has already shrunk nearly 35 percent in the past seven years, the energy researchers said. It was $2.77 per thousand cubic feet in 1985, and dropped to about $1.83 in 1992.

"We expect the margin to fall again in 1994 and to continue to decline for the foreseeable future," a recent National Energy Research Associates paper stated.

Thus, the think tank group forecasts U.S. gas consumption to grow 3.5 percent this year to 20.4 trillion cubic feet. By 2000, the analysts predict gas usage to reach 23 trillion cubic feet, and by 2010, 27 trillion cubic feet.

No conservation-related decline is expected until about 2005, according to the research paper. About that time, wellhead gas prices are forecast to peak at $3.50 per thousand cubic feet, after hitting $3 in 2000.

That sounds pretty reasonable, but Federal Energy Regulatory Commission Order 636, the pipeline deregulation rule, has not been fully implemented, yet. It is to be completed by the end of the year, with a speculated fallout in the industry. There are already signs of significant consequences, especially to gas marketers.

We'll try to keep posted. . . Speaking of North America's most popular energy topic, "Natural Gas: Realizing the Potential" is the theme of a Society of Petroleum Engineers' symposium June 28-30 in Calgary, Canada.

The Gas Technology Symposium is a biennial event sponsored by the organization along with the American Gas Association, Energy, Mines and Resources Canada, Gas Processors Association, Gas Research Institute and the Petroleum Society of CIM. …