Stellar Times Ahead For Natural Gas

MARKETWATCH

THERE'S nothing like a brisk cold spell - as has occurred recently in parts of the United States - to keep the folks down at the local energy utility happy. Cold weather means higher energy usage, which translates into profits. But even without frigid weather, experts are now anticipating that for one energy sector in particular - natural gas - a stellar period lies ahead.

Natural gas will be the ``preferred fuel for the 1990s,'' predicts Bruce Lazier, an energy analyst with Prescott Ball & Turben Inc. His reasoning: Investment decisions during this decade will be ``strongly influenced by environmental concerns.'' Given the relative cleanliness of gas, it comes out well ahead of coal and oil, and, certainly carries less political liability than nuclear power, he says.

Mr. Lazier holds that the current period is the beginning of a ``long secular growth trend'' in earnings and stock gains for natural gas companies.

``Natural gas is the only fuel in the United States that is clean, which makes it very attractive as a product,'' says Ronald J. Barone, an analyst with Kidder, Peabody & Co. Moreover, he argues, electricity from gas is cheaper than electricity produced from coal or nuclear.

Gas industry officials also are upbeat about prospects for their product. George H. Lawrence, president of the American Gas Association (AGA), reckons that when the final figures are tallied for 1989, gas demand will have been found to have risen by 2 percent, giving the industry ``a three-year increase of nearly 14 percent.''

According to a new AGA forecast, gas demand in the year 2010 will amount to between 21 million quads and 25.8 million quads, with an overall energy market share of around 28 percent. In 1988, for which final figures are available, gas demand reached 18.6 million quads and a market share of around 19 percent.

Industry officials say they believe that a potentially lucrative new usage for natural gas will be as a fuel for vehicles. Both General Motors and Ford are reportedly studying the possibility. Another usage could be for fueling cooling systems.

Natural gas offers ``less wear and tear on the engine'' than is the case with gasoline or diesel and other potential vehicle fuels, Mr. Barone says.

Natural gas usage and prices, not surprisingly, have risen sharply in recent weeks with the cold spell. Some users have been asked to switch to oil. To ensure long-range supplies, the outlook is for an increase to the $2.50 mcf level. January spot prices have jumped to or about that range, compared with an average $1.50 to $1.70 mcf last year.

Although prices are expected to peak in January or February, the long-term outlook remains bright, says William Hyler, an energy analyst with Oppenheimer & Co. The ``pure'' - that is, primary, gas-producing companies - have seen their stocks double in price during the past year or so. Pipeline stocks are trading at a premium to the market. New supplies, Mr. Hyler says, are expected in the next few years, including new Canadian imports and additional LNG (liquid natural gas) imports. Domestic drilling will also be up, he says.

One element to watch closely is the possibility of a recession. Since roughly 30 percent of natural gas is consumed by industry, a slump would depress demand, Hyler notes. He is currently recommending Cabot Corporation, Seagull Energy, and Phillips Petroleum (an oil/gas producer).

Mr. Barone, of Kidder, Peabody, likes Arkla Inc., British Gas, Tenneco, and Union Texas, all in the gas and energy area. He says that he may issue a buy recommendation on a number of other gas firms in the spring, as energy demand tapers off, and the stocks trade at somewhat reduced prices.

Lazier, of Prescott, likes Oryx, Coastal, Panhandle, Diversified Energies, Freeport Energy, Valero, Occidental, and Edisto Resources, which, he notes, is the largest independent producer in the Gulf of Mexico.