By Thomas C. Hayes
N.Y. Times News Service
DALLAS _ For natural gas producers in the United States, the
last few years have been a famine of biblical proportions. Prices
have been so low that hundreds of companies have been driven out
of business and thousands of workers have lost their jobs.
Now, suddenly, gas prices are at a post-1985 high. They were
jolted upward most recently when Hurricane Andrew tore through
the Gulf of Mexico last month, knocking out about 5 percent of
the nation's gas output for several weeks.
But the hurricane was only the latest of several events that
have caused spot prices for natural gas to double in only six
months. What is more, gas producers now believe that the
confluence of a number of longrm trends will keep prices
comfortably above the lowter marks of recent years.
"We are getting back very close to a balance in supply and
demand in natural gas," said Kenneth L. Lay, chairman and chief
executive of the Enron Corp., operator of the nation's biggest
pipeline and a large independent gas producer.
Analysts say the markets are favoring producers because of a
combination of factors that have been either limiting supplies or
R. Gamble Baldwin, managing partner of Natural Gas Partners,
an investment firm in Greenwich, Conn., said prices could spike
above $2.50 per 1,000 cubic feet if the winter is particularly
Gas consumption in the United States has increased in each of
the last five years, partly because industrial users and
utilities found gas cheaper to burn than fuel oil. By most
accounts, gas use will reach 20 trillion cubic feet this year,
the highest since 1979.
Some forecasts put the annual total at 23 trillion by the end
of the decade, with most of the increase coming from new gasred
electric power plants. Between 1978 and 1988, Congress banned gas
as a fuel source for new industrial plants and new electrical
power plants because of fears of shortages. Gas plants are
cheaper to build and operate than coal or oilred plants and they
While production has risen enough to permit the use of gas in
power plants, drillers have not been finding enough new gas
fields for reserves to keep pace with rising production.
In 1991 additions to reserves amounted to just 70 percent of
production. With drilling activity at a 50-year low and with
output rising, reserve replacements will certainly be even lower
Existing total proven gas reserves amount to an eightar supply
at current consumption rates, according to the Energy Department.
But the National Petroleum Council, an industryonsored group that
advises government energy officials, says probable gas reserves
exceed a 50-year supply, and it maintains that if prices remain
high enough to finance drilling and production, the level of
reserves could quickly be increased.
Rising crude oil prices this year have helped to bolster gas
prices. Many manufacturers and utilities can burn either gas or
No. 6 fuel oil, whichever is cheaper. With the price of light
domestic crude oil hovering near $22 a barrel, gas has had a
clear price advantage over fuel oil until it soared past $2 per
1,000 cubic feet in late August.
After falling in some areas below $1 per 1,000 cubic feet _
the lowest winter price in 15 years _ last February, when the
weather was unusually warm, gas prices have marched steadily
"The gas situation has finally bottomed out and is turning
around," said George P. Mitchell, chairman and chief executive of
the Mitchell Energy and Development Corp.
The rise can be attributed in varying degrees to a cool
spring, which caused demand for gas for heating to stay high; hot
summer temperatures in the Southeast, where gaswered electricity
typically runs the airnditioners; voluntary drilling cutbacks by
some producers who were disgusted by low winter prices; new rules
in Texas and Oklahoma that squeezed some output, and the June
report that the nation's drilling activity had fallen to the
lowest level in 50 years, with only 596 rigs exploring for oil
and gas. …