WASHINGTON -- Wellhead prices for oil and natural gas have been on a bullish ride for most of the past six months, providing a boon to producers and higher costs for consumers and industrial users such as refiners.
Many analysts predict that the ride will come to a gradual end by this spring, with both markets settling in a lower range -- though not as low as before the ride started.
Over the longer term after the year 2000, the Energy Information Administration, the forecast and statistics branch for the U.S. Energy Department, recently projected that prices for both commodities are likely to sputter and create a favorable consumer trend.
"This increase is a result of continued growth in U.S. manufacturing, along with new gas-fired technologies that capture market share in this sector," said Tom Fisher, AGA's chairman. Industrial gas use accounts for about 43 percent of all natural gas consumed domestically.
In spite of strong demand, EIA predicted that wellhead gas prices -- up a steep 40 percent in 1996 from average prices in 1995 -- will return to a lower range by early this year.
If weather patterns for the first quarter of 1997 are normal, prices are expected to drop 4 percent in 1997 and an additional 5 percent in 1998 "as increased domestic production and Canadian imports, as well as continued market efficiencies, offset demand growth," EIA analysts said.
Natural gas prices on the futures market temporarily climbed over $4 per million British thermal units (MMBtu) this winter and have regularly hovered over $3, about double the average wellhead price of $1.59 per thousand cubic feet (mcf) cited by EIA in 1995. Prices quoted by EIA in mcf units are about equivalent to MMBtu units quoted on the futures market.
Even after the projected downturn in wellhead prices by this year's second quarter, EIA said gas prices were expected to average at least $2 per mcf through 1998 -- still well above the $1.59 average in 1995.
"Our current midprice projection calls for a settling down of prices from the current relatively high levels to average between $21 to $21.50 per barrel in 1997 and 1998," said EIA. "This represents an upward revision from previous projections and is based on the evident persistent pressure on spot prices from strong world demand and relatively low inventories."
EIA's projections were based on the cost of imported oil to U.S. refiners.
Prices for 1997 are expected to peak in the first quarter with an average price of $21.80 "as low stocks coupled with winter demand will absorb the additional Iraqi oil. The full effects of the resumption of shipments of Iraqi oil are assumed to occur later in the year," according to EIA.
Future markets will be "characterized by lower prices for all energy sources," according to EIA's Annual Energy Outlook 1997. "This is primarily the result of new findings indicating that the costs of exploration, development and extraction of fossil fuel production are declining as a result of . . . technological advances such as 3-D seismology and horizontal drilling."
U.S. oil output could vary widely, but the analysts said their best bet would place U.S. production in 2015 at about 5.2 million barrels per day (mbd), well below the current level near 6.4 mbd. But production could be in a range between 4 million and 6.9 million barrels per day, depending on average oil prices that could drive up U.S. output if they go higher than the moderate outlook of $21 per barrel.
Net petroleum imports, including crude oil and products, were expected to rise to 61 percent of U.S. supplies at the end of the long-range forecast.