Not only is the "gas bubble" expected to burst this fall or
winter, but the pendulum is very apt to swing the other way.
Producers foresee a real shortage of natural gas, not the
perception of gas shortages that was prevalent in the 1970s.
At this point, there probably is little anyone could do to
prevent it, conventional wisdom says.
For some time, producers like Buddy Kleemeier with Kaiserancis
Oil Co. in Tulsa and Bob Alexander of Alexander Energy Corp. in
Oklahoma City have warned about gas shortages to come. And their
arguments have nothing to do with their support for gas
proration, which they add does not restrict supply.
Industry watchers from outside have predicted for the past
four years the gas bubble would burst, but lately with a great
deal more credibility as forecasts go. Latest market analysts
added to that group are Goldman, Sachs Co. and Smith Barney.
While stock analysts and futures traders are delighted at the
prospect of higher gas prices, producers do not welcome the
inevitable price spike that would accompany a supply shortage.
Producers get a feeling of deja vu. Those old Washington tapes
begin to play, and producers are always cast as the villains.
Part of the problem is that while gas prices have been
depressed, the commodity has become a favorite bargain among
consumers. Government statistics show U.S. gas consumption in May
was up 8 percent from May 1991, according to Donald F. Textor
with Goldman, Sachs Co. in New York. For the first five months
of the year, it was up a healthy 3.7 percent from a year before.
"Importantly, the sector demand numbers show that the
increased consumption did not occur in the weathernsitive
residential or commercial sectors, but rather in the industrial,
and to a lesser extent, electrical generation areas," Textor said
in a report dated July 16.
But the clincher is that while gas prices have been so low,
producers were not rushing out to drill for new reserves. Of the
national rig tally, which is hovering near 660, less than half of
the rigs are searching for gas, Smith Barney analysts have
For January through May, government statistics show that
domestic gas production was up only 0.8 percent from the same
period in 1991, Textor said. He also noted that gas storage
levels were down while gas imports rose.
"Therefore," he concluded, "only a small portion, perhaps 20
percent, of the incremental gas demand is being met from domestic
production. This fact tends to support the view that U.S. gas
production is currently running at a relatively high rate of
"We continue to believe that supply and demand trends indicate
a tightening in natural gas markets, and we remain quite bullish
about the medium and longerrm price outlook for the commodity."
Gas futures prices are now trading at about $2.20 per thousand
cubic feet for January. Within the industry, many believe it is
not unrealistic for gas to reach $3 by that time. Also notable,
this winter is predicted to be normal or colder, reversing the
trend over the past six or seven years of warmeranrmal
Warmer winters and tax incentives to drill for coalseam and
other unconventional gas resources over the past few years have
distorted or, more accurately, masked the problem, producers
It will be compounded by consumers' growing dependence on the
shortrm spot market and natural gas futures, they add. The spot
market emerged in 1985; natural gas futures began trading in
Another difference from the situation in the late 1970s is
that gas prices were still regulated then. And the problem with
gas curtailments in late 1989 was more technical, caused by
freeze offs at the wellhead and pipeline ruptures due to the
sudden, extreme cold. …