Factors Controlling Gas Supply and Demand
Authors: Keaton James C. 
Published: December 2007

If the gas industry were permitted to operate under the economic laws of supply and demand, the wellhead price per Mcf of gas could conceivably jump by as much as 15 cents. This would be an intolerable and inadmissible increase until John Q. finds himself without heat and services in the middle of a good, hard winter. Can his discomfort be avoided? Will it be avoided?

Introduction

Any attempt to forecast trends in the supply-and-demand aspects of natural gas in the U. S. must take into consideration all of the up-and-down cycles in the development of the natural gas industry. Each step must be analyzed, from the early days when the fielding of gas was an unwelcome occurrence that often accompanied the search for oil, through the discovery of the giant Mid-Continent and Gulf Coast gas fields and the post-World War II expansion years, to the current period of restrictive regulation, uneasy supply, and industry cost squeeze. Each step has resulted in a definite action or reaction that has left its imprint on the supply-and-demand relationship of the Industry, a relationship whose development is etched in the memories of the decision-makers in the Industry and that undoubtedly will be of considerable influence in all their future plans and decisions. Many long-time observers and experts in the Industry are amazed at, or even bewildered by, the rapid changes in concepts of supply and demand that are taking place almost daily, not to mention the rapidly changing concepts in gas processing and transportation. Certainly, the proven engineering techniques of extrapolation and proven engineering techniques of extrapolation and probability projection of data must be used with probability projection of data must be used with considerable qualification and caution in predicting future trends of the Industry on the basis of past trends.

Past Supply-and-Demand Relationships Past Supply-and-Demand Relationships and Regulation

Early gas discoveries resulted from the exploration for oil, and except for the small quantities used in the oil fields for fuel and lighting, gas was an unwanted commodity. Vast amounts of gas were flared from the early oil fields, and gas wells that were drilled were capped. Discovery wells were shut in because there were no gas markets, and many large gas fields were to remain undeveloped for a number of years. The first commercial outlet for this early-day gas was for domestic heating and lighting in nearby cities and towns. Generally, the gas fields were located far from any large population centers; and the gas supply was of how low than the local demand, with the result that gas was cheap. In the early days any price, regardless of how low, was considered better than losing it all by flaring the gas from the oil fields, or leaving the gas fields shut in. State regulatory agencies were being formed in the producing states, and they began issuing orders to prevent the flaring of gas in the oil fields. It was truly a lucky town that had a large supply of almost free natural gas nearby. Carbon black plants, ore smelters, brick plants, and other such gas-burning industries began moving in to take advantage of the cheap gas. (Many of the industrial cities of the Southwest and the Gulf Coast based their beginnings on this situation.) Rubber plants, ammonia plants, and other chemical and plastic plants were to follow. The early isolated gas fields in the U. S. can be compared in many ways with some of the newly discovered, remote foreign gas fields.

JPT

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