โ Scribed by Stewart, Marion B.
No coin nor oath required. For personal study only.
case can be made that the gas "bubble"-A the decade-long period of excess gas deliverability in North America-began in 1982 and largely evaporated by the end of 1992. In 1982, soaring gas prices and economic recession led to a 7-percent drop in gas consumption. The ratio of proved gas reserves to annual gas production in the Lower Forty-Eight rose from less than 9 in 1981 to nearly 9.8 in 1982. If one assumes that gas deliverability in the Lower Forty-Eight moves in step with the proved reserve base of natural gas, then in 1982 the combination of reduced demand and new reserve additions led to an annual gas bubble of at least 1.7 trillion cubic feet. In 1983, excess gas deliverability (on an annual basis) grew by an additional 1.5 trillion cubic feet, according to our calculations. Through 1991 the bubble remained well above 1 trillion cubic feet a year.
Our calculations suggest that through much of 1992, a modest gas bubble persisted in the Lower Forty-Eight. However, that small deliverability surplus was clearly not enough to keep gas-hungry buyers at bay. Spot wellhead gas prices doubled during the spring and summer of 1992. Hurricane Andrew added its own upward price pressure, but wellhead prices were well on their way toward $2 a thousand cubic feet before the hurricane hit. The upward trend in prices continued in 1993, with spot wellhead prices during the first three quarters averaging 30 percent higher than the average price during the same period in 1992.
Given the inevitable lag between any gas drilling turnaround (see Figure ) and a substantial increase in deliverability, our current analysis suggests that (1) gas markets will remain tight during the remainder of the dec-ade, and (2) consumers are likely to be squeezed even harder during the next few years. A "paper surplus" of nearly 1 trillion cubic feet during 1992 was not enough to prevent a huge price increase. Our gas reserves and production model
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