A supply/demand equilibrium in the natural gas
market could be reached as soon as the winter of 1987-88, according
to several industry analysts.
Another development expected to solidify the market in coming
years is the emergence of natural gas as an industry on its own as
it moves to the forefront of energy alternatives.
"The gas surplus will decrease because of the psychology that is
prevalent in the marketplace: we have more gas than we know what to
do with," said Sam Hammons, Oklahoma's representative to the
Interstate Oil Compact Commission.
"The time is a function of the weather. It's a possibility this
winter, but is more likely next winter," he said.
"We are seeing a time when we will have problems with some peak
days," Hammons said.
Since very little domestic drilling is being done and people are
not exploring for new natural gas reserves, the natural gas surplus
bubble could disappear within the next two years, said David
Bradshaw, vice president of Rauscher Pierce Refsnes Inc., a Dallas
investment firm. This projection was made assuming no increase in
the amount of gas used by consumers.
Rauscher Pierce Refsnes Inc. recently published a report
recommending four natural gas exploration and production companies,
including Noble Affiliates Inc. of Ardmore and Kerr-McGee Corp. of
The report projected a "dramatic decline" in gas reserves over
the next three years, and companies with a heavy commitment to
natural gas would reap the greatest benefit from the shift in
"At the current drilling rates, in a couple of years, producers
should be able to sell all the gas produced," said Bill Dutcher,
senior vice president for the RAM Group of Oklahoma City.
Gas prices will be more seasonal as a greater portion is
deregulated and not under long-term contracts, Dutcher said.
"Based on fundamental economics, the price of oil should move up
in the early 1990s because the surplus from non-OPEC countries will
be worked off," he said.
"At that point, the natural gas price will move up if it remains
competitive, but it can't move up on its own."
Fuel oil would have a dampening effect on the price of natural
gas because of the ability of large industrial users to switch to
the cheaper heat source, Hammons said.
Even if a shortage of natural gas develops, Hammons said, the
price cannot rise beyond a certain point where the cost of residual
fuel would be lower.
As the gas bubble decreases, gas can compete more directly with
oil on delivery, Dutcher said. If oil prices rise to $18, then the
price of natural gas at the wellhead can be sold for $2.25 to $2.50
per thousand cubic feet.
If the price of natural gas does move up, it is still blocked in
by the competition from the price of oil. Natural gas prices will
not get back up to $3 or $4 per thousand cubic feet because the oil
price is not there, Dutcher said.
Pipeline companies are already trying to lengthen the terms of
contracts because of the price, Bradshaw said.
"The relative movement is toward firming up longer term contracts
and longer term supplies," Bradshaw said.
"Natural gas is becoming its own industry," said Vinod Dar,
president and chief executive officer of Hadson Gas Systems Inc. of
It is definately becoming its own industry, he said, because of
the way natural gas is transported and marketed.
As an industry, natural gas is separate and unique, but the
price is set by what happens in the oil market, said Dar.
"In terms of the price, gas can't be decoupled from oil," Dar
"One third of the gas market is tied to the price of oil. …