Emerging Trends In Natural Gas Supply And Demand

Abstract

Abstract The purpose of this paper is to discuss historic trends and likely trends to 1990 regarding pipeline quality supplies of gas in the U.S. In recent years, the rate of change in the natural gas industry has accelerated, exacerbating planning problems on the part of buyers and sellers. It is expected that the part of buyers and sellers. It is expected that the natural gas business will be as dynamic in the future as it has been during the recent past. Uncertainty due to the emergence of several new factors will make the balancing of supply and demand by gas companies more difficult. Conventional natural gas production is expected to continue to decline, although by 1990 it will still provide the majority of total gas supply. Increasing provide the majority of total gas supply. Increasing amounts of supplemental gas — Alaskan gas, imports and synthetics — are forecast but not in sufficient volume to offset declining Lower 48 production. Demand for gas will increase in the residential, commercial and high priority industrial sectors where gas will have competitive advantages over other fuels. Consumption in these sectors will rise despite declining overall supply to the detriment of large boiler fuel usage. To accommodate these shifts in demand and supply patterns, substantial increases in underground storage capacity will be required. Introduction The planning horizon for most companies in the natural gas industry is twenty years or longer, reflecting the capital intensiveness of all facets of the business and the time required to deplete known reservoirs. Each year large expenditures are made in the field and for transportation and distribution which monies will not be recouped for many years. Reviewing the events of the past twenty years, however, indicates the difficulties in predicting pricing, regulation, supply, and demand twenty years pricing, regulation, supply, and demand twenty years or even less in the future. In recent years, the rate of change in the natural gas industry has accelerated. It is the purpose of this paper to discuss recent trends in natural gas supply and demand and likely trends to 1990. HISTORIC TRENDS Events of the past two winter seasons provide a good example of the rapidity of developments in natural gas supply and demand. Supply shortages coupled with extremely cold weather resulted in economic dislocation-factory shutdowns and unemployment during the past two winters. But by this past summer, there were indications of what many observers characterized as a short run gas surplus in certain producing areas and for some pipeline systems. This ostensible inconsistency is explainable in part by reference to the long lead times required to part by reference to the long lead times required to balance supply and demand, especially in a time when many new trends have emerged. Additionally, practical constraints particularly in the operation of gas transmission systems can result in short-term aberrations in supply. As with many finite resource markets, natural gas is characterized by long lead and lag times in both supply and demand. Figure 1 shows historic trends in natural gas supply and consumption in the United States. On the supply side, although there has been a precipitous decline in the rate of reserves additions since 1967, production did not begin to decline until 1975. Thus, the indications of supply deterioration occurred at least seven years before production faltered. Although well drilling began production faltered. Although well drilling began increasing during the early 1970's in response to higher prices and is now at record highs, production declined significantly in 1974 and 1975 and continued to decline at a reduced rate in 1976 and 1977. The recent slowdown in the rate of decline in production reflects with some lag in the increase in well drilling. Production of gas requires ready markets, and consumption of gas has been affected by not only deteriorating supply but also various depressants on demand. Demand for gas has been lower than was predicted a few years ago due to conservation, fuel predicted a few years ago due to conservation, fuel switching and restrictions on the attachment of new customers in various parts of the country.