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News Release, Kansas Geological Survey, Oct. 8, 1999

Oil and Gas Prices Bounce Back, But Production Doesn't

LAWRENCE--Oil and natural gas prices have recovered substantially over the past year, bouncing back from their lowest levels in years.

Those prices should hold firm, and natural gas prices could increase dramatically in the event of an unseasonably cold winter, according to energy analysts at the Kansas Geological Survey, based at the University of Kansas.

Natural gas, in particular, has increased in price during the past year. Current prices in Kansas are around $2.50 per thousand cubic feet. Even though natural gas production has increased over the past decade, prices have gone up because consumption continues to increase.

"Natural gas is increasingly used in electrical generation because it is easier and cheaper to build gas-fired turbines," said Tim Carr, chief of the Survey's petroleum research section. "As a result, more gas is used in the summer than before. In the past, gas was used mainly in the winter for heating, but now it is used year round in gas-fired electrical generating plants."

The increased demand for natural gas hasn't translated into increased production thus far. While gas prices have gone up, gas production has remained about steady.

"Much of the natural gas production in Kansas and from on-shore in the U.S. is from older fields, where the production has peaked," said Carr. Most of the nation's increased demand for natural gas has been met by imports, particularly by natural gas from Canada. Energy experts estimate that the U.S. has only a few weeks of natural gas supply in storage, and a jump in demand could quickly translate into higher prices.

"We could see some additional price increases in natural gas if we have an unusually cold winter," said Carr. "Because prices are now un-regulated, increased demand can have an instantaneous impact on prices."

Natural gas prices generally mirror oil prices, which have also increased in the past year, from a low of less than $10 a barrel to nearly $25 a barrel today. That increase is largely the result of cutbacks in Middle Eastern oil production, and demand that has increased as the world's economy picks up.

Thus far, those price increases have not translated into dramatic increases in oil exploration in Kansas. Only seven drilling rigs are currently operating in the state, according to the most recent rig count.

"But if prices stay at these levels, or continue to rise, we'll see things begin to pick up in the oil patch," said Carr.

Kansas oil production totaled about 35 million barrels in 1998, down about 12 percent from the previous year, primarily because of lower prices (the average price per barrel was $11.46 in 1998, compared to $18.63 in 1997). Natural gas production in the state was 630 billion cubic feet in 1998, down slightly from 1997, again because of older fields and lower prices ($2.03 per thousand cubic feet in 1998 compared to $2.18 in 1997).

Story by Rex Buchanan, (785) 864-3965
For more information contact Tim Carr, (785) 864-3965

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