A Management Look at Natural Gas

Natural gas is a major factor in the domestic petroleum industry and should command wellhead prices commensurate with its impact on the energy markets. By 1968 gas is predicted to supply 72 per cent of the petroleum energy consumed in those markets where gas and hydrocarbon liquids are in competition with each other. Industry must intensify its exploration efforts to find an annual average of 26 trillion cu ft of gas over the next 10 years. This is needed to back up the predicted 5 per cent annual increase in gas demand. Unit expenditures for finding and developing petroleum hydrocarbons have increased at a faster rate than have unit wellhead revenues per million Btu of combined domestic crude oil and natural gas production. In fact, at constant dollars, unit revenues for combined wellhead production have decreased. Wellhead prices ranging from 18 to 25 cents/Mcf for new gas contracts seem to offer the incentive to explore for and to develop gas reserves. The average wellhead price in 1958 of 11.9 cents/Mcf on all gas must rise to 18 to 20 cents within three years and to 25 cents within 10 years to sustain intensified exploration activities. In addition to firmer prices on new gas commitments, producers must receive higher prices on gas delivered under older contracts. In both cases, Federal regulation of about 65 per cent of the marketed gas production presents a number of uncertainties. Pending an acceptable solution to the regulatory problem, producers should aggressively pursue natural gas activities. Exploration should be concentrated in areas offering the required incentive prices. Sales should be made preferentially into non-jurisdictional markets, or to those interstate markets offering the greatest wellhead revenues. Introduction There are some 6,000 producers in the United States who sell significant quantities of natural gas and who are not primarily engaged in the operation of interstate gas pipelines. These "independent producers" sell gas in both interstate and intrastate commerce and are heavily engaged as well in crude-oil finding and development.