โ Scribed by Swanson, Carl V.
No coin nor oath required. For personal study only.
High 1997 Gas Production May Cap Gas Prices f there were a typical commodity cycle in the I natural gas markets, gas prices should be lower in 1997 than in 1996. However, the gas market does not believe this, as shown by the very high current prices and the high 1997 futures prices (as of December 17,1996) shown in Exhibit 1. Other than the temperatures this 1996-1997 winter, the greatest uncertainty for forecasting 1997 gas prices is the level of gas production. This article analyzes the theory about a natural gas cycle and evaluates the amount of gas production that is likely to flow in 1997.
e greatest une for forecasting 1 gas prices is the level of gas production.
Logic suggests that natural gas markets should experience a typical commodity cycle. High prices during one year lead to decreased demand, higher inventories, and more drilling for gas. Increased drilling eventually increases gas production, which, after a while, depresses gas prices. The cycle continues as lower gas prices increase demand, reduce inventories, and slow gas drilling. The subsequent leveling or declining of gas production prompts gas prices to rise, and the cycle begins anew.
Evidence from the recent past suggests that such a cycle may exist. The low gas prices of 1992-the South Louisiana spot gas price fell to about $1.00 a million BTUs in
๐ SIMILAR VOLUMES
n oil and gas exploration, the easy-to-find and cheap-to-produce fields are discovered first. Consequently, oil and gas fields are increasingly elusive. One must drill deeper or in less accessible locations to find new oil and gas fields. Additionally, the size of reservoirs in existing fields grow