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November, 1954 Volume XXXVI Number 11 Natural Gas in the Eighth District ATURAL GAS CONSUMPTION has risen rapidly in recent years in the nation and in the Eighth Federal Reserve District. Industries use most of the gas marketed and petrochemical plants recently located in the district are based on this resource. Residential uses have also risen sharply. The increased use of natural gas reflects several advantages, but chiefly the more favorable price of natural gas than competitive fuels. As a result of increasing demands and costs, gas prices have moved up. Prices in the district vary widely. District production is small and in recent years has declined. Conse quently, most of the natural gas consumed in the district comes from other areas. Expanding use has required increased pipeline capacity connecting the major supply areas of the Southwest with consuming areas. Underground storage facilities also help meet rising demands. Proved reserves have in creased but at a lower rate than rising production. Natural gas has become an important resource for district development. V F e d e r a lR Bank __0/St. Louis Natural gas consumption has risen rapidly in recent years in the nation and in the Eighth Federal Reserve District. UR AMERICAN ECONOMY requires tremendous amounts of energy to keep it going and growing. All production takes energy but ours is especially dependent on it as, each year, workers have more and more horsepower placed at their command and as consumers seek to improve their standards of con venience and living. Potential energy sources are, therefore, among the prime resources of the American economy. Natural gas has developed over the past half-cen tury into one of our major energy sources. The growth of the natural gas industry has been prodigious. At the start of the century, natural gas contributed only 3 per cent of the energy requirements of the nation fur nished by mineral fuels and water power; by 1953, this share had risen to 23 per cent. And the shift to ward natural gas has continued into 1954. The economic significance of a resource lies in its availability. This fact is essential to understanding the importance of natural gas in the Eighth Federal Reserve District. Most of the natural gas produced in the nation comes from the Southwest. But the technological marvel of pipelines has made this source of energy and raw materials available to large areas of the Eighth District and in such quantities that natural gas has taken its place as a significant district “resource.” The Eighth District is centered on a net work of natural gas pipelines connecting the wells of Texas and Louisiana with the industries of the East. District industries can tap this network and obtain the useful material. The extent to which the Eighth District has shared in the expanded use of natural gas and, thus, the ex tent to which industry and consumers here have taken advantage of the fuel's availability can be judged by figures on consumption in the seven states in which the district is located .1 From 1947 to 1953, consump tion in these states increased 136 per cent while for the United States as a whole the increase was 82 per cent (see Table I). In addition to the growth comparison, which is made on the basis of physical units, cubic feet, it might also be of interest to note the dollar amount paid for natural gas in a recent year by businesses and consumers in district states and to measure that 1The seven Eighth District states are: Arkansas, Illinois, Indiana, Kentucky, Mississippi, Missouri and Tennessee. Official data on gas consumption are available by states, but not by Federal Reserve districts. Page 122 amount against the comparable total national expendi ture. Data on value at the point of consumption (roughly equivalent to cost to users) show that the TABLE I C O N SU M P T IO N OF NATURAL GAS, 1947 A N D 1953 (Amounts in Billions o f C ubic Feet) Eighth District States United States Per cent Increase 1947 1953 Per cent Increase 1947 1953 T o t a l................. 480 1134 136 4 426 8076 82 Residential 122 281 130 802 1686 110 C om m ercial. . . 44 89 102 285 542 90 Industrial.......... 314 763 143 3339 5849 75 Detail m ay not add to totals due to rounding. Source: Bureau o f Mines. total value of natural gas distributed in district states during 1953 was $462 million. Gas for residential use was valued at $233 million, just over half the dollar total; $52 million was paid for commercial consump tion and $177 million for industrial uses. The nation's bill for natural gas in that same year came to $2.9 billion. Industries use most of the gas marketed . .. Not only did total use of natural gas expand rela tively faster in district states than in the nation, but industrial use here almost doubled the rate of national growth from 1947 to 1953. Turning to physical meas ures again, it is clear from the figures in Table I that, in both the district and the nation, industries consume most of the natural gas used. In district states in dustrial consumption accounted for about two-thirds of one trillion-plus cubic feet of natural gas used in 1953. Energy Supply in United States from Mineral Fuels. One of the chief industrial uses of natural gas is for fuel at electric utility plants. This particular market which consumed 17 per cent of the natural gas used in district states during 1952 (see Table II) has exTABLE II CONSUMPTION OF NATURAL GAS IN DISTRICT STATES, 1952 Billion C ubic Feet Total ................................................................................... Per cent o f T otal 1,082 100 ......................................................................... 2 64 24 ....................................................................... 86 8 .................................... ...................... Industrial . . . F ield (drilling, pum ping and operating gasoline recovery p l a n t s ) ..................................... Petroleum refineries ................................................... Portland cem ent plants ............................................ Natural gas pipelines, primarily p u m p in g.......... F uel at electric utility plants ............ ................... Other industrial .......................................................... 732 68 60 22 8 55 188 400 6 2 1 5 17 37 Residential Com m ercial Source: Minerals Yearbook, 1952 preprint. panded sharply in the postwar period, reflecting both the larger proportion of electric power generated by gas and the growth in electric generating capacity which has taken place here at an even faster pace than in the nation. Based on Federal Power Commis sion figures, gas used by electric utilities in district states increased five fold from 1947 to 1953, about twice as fast as in the nation. Coal used in electric power generation rose 46 per cent but oil use fell 28 per cent in the same period. In the nation the propor tion of electric power generated by gas increased from 9 per cent of the total in 1947 to 18 per cent in 1953. Other large industrial users of gas are petroleum refineries, natural gas pipelines (for pumping), portland cement and other stone, clay or glass plants, primary metals and food products industries. However, use according to industry tells only part of the story of natural gas consumption; the kind of use within the industry may be even more significant. . . . and petrochemical plants recently located in the district are based on this resource. Natural gas serves industry primarily as boiler fuel and in heat treatment or processing, but it is also used, along with petroleum, as a chemical raw material in the production of basic petrochemicals. Within the last 25 years the hydrocarbon components of petro leum and natural gas have become a source of raw materials for more than 2,500 different chemical prod ucts. About 25 per cent of total chemical production is based on natural gas and petroleum as raw ma terials. Although the volume of gas so used is not a large proportion of die total, it is an important one. Nationally, the largest share of natural gas used by the petrochemical industries goes into production of carbon black; the second largest into production of ammonia. Rising production of solvents, fertilizer and plastics, which are major end products of the chemical industry, has been an important factor in the increased demand for basic petrochemicals. Syn thetic resins, fibers and rubber are dependent upon the use of organic raw materials, largely of petro chemical origin. The attractiveness of natural gas as a raw material source for the chemical industry reflects the low cost with which the hydrocarbon components can be readily derived. Gas which is subjected to processing for petrochemical purposes can be subsequently uti lized as a fuel since the desired components can be extracted from the natural gas without subtracting greatly from the heat content of the remaining gas for fuel purposes. In recent years several petrochemical plants have been located in the Eighth Federal Reserve District. These locations reflect the availability of natural gas supplies and the existence of nearby markets. While most of the nations petrochemical plants have been located in the Gulf Coast area close to the gas pro ducing areas, the recent location of several plants in this district suggests that there are economies to be gained in moving the natural gas by pipeline from southwestern producing areas to plants set closer to the large consuming areas in the northeastern section of the nation. The five chemical plants in operation or under con struction in the Eighth District for production of synthetic ammonia and related compounds are excel lent examples of the ability to locate petrochemical plants away from the gas fields and closer to tlie markets. DISTRICT A M M O N IA PLANTS Com pany Location Grace Chem ical C om pany Mem phis, Tennessee H ercules Powder C om pany Louisiana, Missouri 105 tons L ion O il Com pany El D orad o, Arkansas 5 70 tons Mississippi River Fuel Corp. Crystal City, Missouri 2 0 0 tons Spencer Chem ical C om pany H enderson, Kentucky 2 0 0 tons Capacity per day 2 5 0 tons The use of natural gas for production of chemicals is well illustrated by the $25 million plant located at Brandenburg, Kentucky, by Mathieson Chemical Cor poration. Raw materials for this operation come from a $12 million plant at Greensburg, Kentucky, where 400,000 gallons of natural gas liquids (ethane) are ex tracted daily from 600 million cubic feet of natural gas. These natural gas liquids are used to produce organic chemical products such as ethylene glycol, used as an antifreeze and as a component in cello phane and other chemicals, and liquefied petroleum gases, such as propane, isobutane and natural gaso line. Page 123 Other district petrochemical plants which utilize natural gas include the duPont Company plant at Memphis which produces hydrogen and sodium cyanide; the B. F. Goodrich Chemical Company plants at Calvert City and Louisville, Kentucky, which produce acrylonitrile and hydrogen; Stauffer Chemi cal Company plant at Louisville which produces car bon tetrachloride, perchlorethylene and hydrogen chloride; and the Olin Mathieson Chemical Corpora tion plant at McKamie, Arkansas, where sulphur is recovered from sour natural gas. Columbia Carbon Company operates the only carbon black plant located in the district. Finally, it might be pointed out, in connection with industrial uses of natural gas, that a small share is consumed by industry in field use which includes that for gas and oil well drilling and pumping, shrinkage loss and gas consumed in operating natural gasoline extraction plants, and the net gas lost in raising oil by injection of gas. Such field uses of natural gas con sumed 6 per cent of the total in district states during 1952. Residential uses have also risen sharply. Analysis of residential use of gas should not be neglected because of the impressiveness of industrial consumption. As has been noted, in value terms, residential consumption constitutes a larger share of the total than industrial use. Further, as indicated in Table I, residential use of natural gas here, while not rising as much as industrial use, increased 130 per cent from 1947 to 1953, reflecting the growth in popu lation and number of dwelling units, conversion from manufactured or mixed to straight natural gas, and greater average use per customer. The Census of Housing in 1950 revealed that 19 per cent of the dwelling units in the Eighth District with heating equipment used gas supplied by a public utility (see Table III). In the seven metropolitan areas of the district, one-third of the dwelling units used utility gas in heating equipment, compared with 13 per cent outside metropolitan areas. The use of utility gas for space heating varied widely from one area to another in 1950. Generally, areas in Arkansas used utility gas for home space heating to a greater extent than other areas of the district, reflecting the avail ability of natural gas for many years in that state at relatively low rates. In the nation the number of gas house heating cus tomers rose by an average of 1.2 million per year from 1949 to 1953. Also, the proportion of residential cus tomers of utilities using gas for space heating rose from 36 per cent in 1949 to 50 per cent in 1953. Page 124 Further increases in the use of gas for house heat ing are indicated by the backlogs of orders on hand for many utilities. The gas industry has forecast an increase of 40 per cent in national residential require ments from 1953 to 1957. TABLE III HEATING FUELS USED IN EIGHTH DISTRICT DWELLING UNITS 1950 Total Dwellings Per cent Using Heating Equipment Coal Utility Gas Liquid Fuel Other Kentucky.......................... Mississippi...................... Missouri........................... Tennessee......................... 431,750 282,860 129,290 288,285 256,890 459,810 131,520 8.1 71.3 67.6 59.5 15.9 37.3 34.4 25.7 5.3 5.3 10.4 15.6 8.9 7.9 9.3 12.0 9.9 5.6 5.1 15.0 12.0 56.9 11.4 17.2 24.5 63.4 38.8 45.7 Metropolitan Areas St. Louis......................... Louisville......................... Memphis........................... Little Rock...................... Evansville......................... Springfield...................... Fort Smith...................... 484,485 164,115 131,155 54,785 47,055 32,635 19,285 58.6 53.8 15.6 1.8 72.1 26.9 10.3 20.2 32.0 66.5 74.9 13.5 33.9 83.5 16.6 9.4 5.2 2.7 10.3 19.9 0.6 4.6 4.8 12.7 20.6 4.1 19.3 5.6 933,515 1,980,405 46.9 38.0 33.4 12.8 12.4 10.1 7.3 39.1 . 2,913,920 40.9 19.4 10.9 28.8 Nonmetropolitan Areas Arkansas........................... Metropolitan Areas........... Eighth Federal Reserve Source: Census of Housing, 1950. The increased use of natural gas reflects several advantages, but chiefly the more favorable price of natural gas than competitive fuels. The tremendous growth of natural gas consumption in the postwar period reflects several advantages of gas as a fuel. Gas is supplied as needed without requiring the consumers investment in a supply on hand; it requires no handling or waste removal; it is clean, produces heat uniformly and can be easily controlled. It is in terms of improved competitive cost position, however, that natural gas enjoys perhaps its greatest advantage. Despite a sharp rise in the general price level and a doubling in the price of coal and fuel oil, the price of natural gas rose only 22 per cent from 1940 to 1953. The comparison is more meaningful when computed on a basis of equivalent energy content. On such a basis the competitive position of natural gas has im proved. The price of gas was about twice that of soft coal in 1940 and only 4 per cent more in 1953 (see Table IV). While coal is still slightly cheaper ac cording to these figures, it should be noted that they do not take into account any differences in burning efficiency, handling costs, or convenience of the fueis. TABLE IV AVERAGE EQUIVALENT RETAIL FUEL PRICES PER M ILLIO N B.T.U. 1935 1940 1945 1950 1953 ................. $0,669 $0,635 $0,601 $0,638 $0,693 Bituminous c o a l .......... .320 .326 .397 .624 .664 Fuel o i l .................................... 422 .498 .616 .884 1.006 Natural gas Source: Federal Power Commission, Natural Gas Investigation (Docket N o. G-580) and Economics of Natural Gas in Texas by Stock ton, Henshaw & Graves. gas, delivered prices have also risen in recent years. The average delivered price of natural gas in district states has not increased as rapidly as in the nation in the postwar years, largely because of the rapid growth of sales in the northeastern section of the country where prices are generally higher than the national average. Value at point of consumption for all natural gas used in district states rose from 36.7 cents per thousand cubic feet in 1947 to 40.7 cents in 1953, an increase of 11 per cent. For the nation as a whole, average value rose 53 per cent from 23.2 cents in 1947 to 35.5 cents in 1953. 1953 data computed by this bank. TABLE V As far as fuel oil is concerned, since 1945 the price of natural gas has been less on an equivalent heat con tent basis. Of course, in both cases these national averages obscure the price situation in many local areas where gas is actually much the cheaper fuel. Prices of fuels for industrial use show much the same pattern of change as in the residential field. On a national basis, the average value at point of con sumption of natural gas used for industrial fuel rose 36 per cent from 1940 to 1953. Over the same period, however, wholesale prices of bituminous coal and fuel oil; more than doubled. The more rapid increase in the use of natural gas than coal by electric generating utilities indicates the relative price advantage of the former in many areas. Much of the gas used by electric utilities is obtained during summer months when other uses are at a minimum. For example, the amount used in August, 1953, was about twice the total consumed in January. As a result of increasing demands and costs, gas prices have moved up. Prior to W orld War II, large amounts of gas were found as a result of the rapid exploration for oil. Since sufficient pipeline capacity was not immediately avail able to take this supply, field prices of gas were de pressed. Now that pipelines have been laid and de mands are increasing, the price of gas at the well is also rising. In 1953, the national average was 9.2 cents per thousand cubic feet, compared with a low of 4.5 cents in 1940. The current average well price reflects much gas sold under existing long term con tracts at lower prices than the average. Newer con tracts generally supply gas at much higher figures than the expiring contracts. Thus, as contracts expire and are renewed, the increasing quantity of gas sold at higher prices raises the average price of gas in the field. Reflecting both the increase in price of gas at wells and the rising cost of transmitting and distributing AVERAGE VALUE OF NATURAL G A S AT POINT OF C O N SU M PT IO N In cents per thousand cubic feet 1947 _______________________1953_____________________ Total Total Residential Commercial Industrial* .......... 23.2 35.5 86.5 61.0 22.8 Eighth District States 36.7 4 0.7 82.8 58.5 24.3 United States Arkansas Illinois .................... 14.2 19.0 53.6 39.1 14.3 ........................ 4 9.5 50.1 95.6 71.9 29.4 ...................... 57.9 64.2 105.9 91.0 37.3 .................... 41.0 38.7 61.4 52.5 27.4 Indiana Kentucky ................. 23.0 2 3.6 73.4 4 2.3 15.0 Missouri ...................... 4 1.7 Mississippi 4 4.8 72.3 51.1 24.3 Tennessee 3 7.6 83.7 54.4 24.1 ................. 33.3 * Excludes gas for field use and carbon black production. Source: Bureau o f Mines. The average value of natural gas in 1953 in district states for residential and commercial purposes was less than in the nation, but for industrial purposes it was higher. This reversed the pattern existing in 1947, when the average values in district states ex ceeded the national averages for all types of use. Average Value at Point of Consumption and at Well. CENTS PER THOUSAND CUBIC FE£T RESIDENTIAL C O M M ER C IA L IN D U STRIA L 1936 * 1939 1942 logarithmic vertical EXCLUDING GAS FOR 1945 scale CARBON BLACK AND FIELD USES Page 125 Natural G a s Availability and Cost in Eighth District (for 40 therms of residential use) the state, although gas has been produced for some time from fields in northeastern Mississippi. 2 The amount of natural gas flared or vented is a large percentage of total production in two district states. Although in Arkansas the amount lost during 1953 was only 3.6 billion cubic feet, 8 per cent of net production, in Illinois the figure for 1953 was esti mated at 24.2 billion cubic feet, 72 per cent of net production, and in Indiana it amounted to 89 per cent of net production. Nationally, the amount of gas flared or vented was only 10 per cent in 1952. Net production of natural gas from Arkansas and Illinois oil and gas fields has declined in recent years. In Arkansas, peak production was reached in 1944. In Illinois, the peak occurred in 1940. However, net production of gas from Indiana in 1952 was greater than in any other recent period. Natural G a s Production. Arkansas Illinois Prices in the district vary widely. As indicated by the chart, the price of gas for resi dential purposes other than house heating varies widely in the district. Since transportation and local distribution costs represent the major share of the delivered price of gas, areas closest to the gas fields generally have lower rates than those farther away. District production is small and in recent years has declined. As was noted at the outset of the article, the Eighth District can hardly boast of the amount of natural gas production within district boundaries. While there is more natural gas production in the district than in all of Europe west of the Iron Curtain, pro duction here is only about 1 per cent of the national output. -Net production in 1953 was 45.1 billion cubic feet in Arkansas, 33.5 billion cubic feet in Illinois, and 7.2 billion cubic feet in Indiana—in the aggregate 85.8 billion cubic feet. Gas is produced in other district states but pri marily in fields which are outside the boundaries of the Eighth Federal Reserve District. None of the production in Tennessee and Missouri comes from fields within the Eighth District and the major part of the gas produced in both Kentucky and Mississippi is from fields outside the district. It is estimated that about 5 per cent of the Kentucky production is from fields within the district. Likewise in Mississippi most of the production is in fields in the southern half of Page 126 Similarly, marketed production of district natural gas (net production less losses and waste by flaring and venting) has declined since 1948. Marketed pro duction in 1953 was 41.5 billion cubic feet in Arkan sas, 9.3 billion in Illinois, and 0.8 billion in Indiana. As was the case in terms of net production, these three states produced less than one per cent of the marketed production in the nation in 1953. An estimated 35 billion cubic feet of solution gas was produced from Illinois oil wells during 1953, of which approximately 13.8 billion cubic feet was processed in natural gasoline plants. Something over 2Output in Arkansas, Illinois and Indiana may be used to approximate net production of natural gas in the Eighth Federal Reserve District. Some gas production in Indiana is outside district boundaries. Counting this non district production as part o f the district total tends to balance the omission of gas produced in district portions o f Kentucky and Mississippi. billion cubic feet, including residue gas from these plants, is believed to have been reinjected into the producing formations. 5 Natural gas is produced in two areas in Arkansas. Production in southern Arkansas is centered in C o lumbia, Lafayette, and Union counties and comes primarily from oil and condensate wells. Gross pro duction in 1953 in southern Arkansas totaled 52.1 billion cubic feet. Most of this gas (47.8 billion cubic feet or 92 per cent) was used in natural gasoline ex traction plants for the production of butane and pro pane and gasoline products. About 6 per cent of the gas produced from southern Arkansas fields was vented that year and a minor portion was used in the fields or put into pipelines. Gas produced in north west Arkansas comes from dry-gas wells, that is, from a geological formation that does not contain crude oil or condensate. In 1953, 11.6 billion cubic feet of gas was produced in northwestern Arkansas fields, all of which was piped to consumers located in that general area. Consequently, most of the natural gas consumed in the district comes from other areas. With district production limited, about 90 per cent of the natural gas consumed in district states in 1952 was received from other states. The ratio of shipments received from other states to consumption ranged from 60 per cent in Mississippi to over 100 per cent in Indiana, Missouri and Tennessee.3 Most of the gas (92 per cent) came from the large producing areas of Oklahoma, Louisiana and Texas while Kansas Major Interstate Shipments of Natural G a s to District States, 1952. supplied about 8 per cent and other states supplied relatively small amounts to district states. Gas piped from Texas, Louisiana, or Oklahoma constituted the largest portion of every district state’s receipts. Shipments from Kansas supplied some areas in Missouri, Illinois and Indiana. In addition, there were minor shipments from Indiana, Arkansas and Mississippi to other district states and from West Virginia to Kentucky (see Table V I). TABLE VI INTERSTATE SHIPM ENT OF NATURAL GAS, 1952 (Billions o f C ubic Feet) Receiving State ............ 165.6 128.4 128.3 ................. 344.7 342 .9 330.1 Arkansas Illinois Consumption Interstate Shipments R eceived From Arkansas Louisiana Oklahom a Total Texas Kansas Mississippi Other Indiana .............. 96.1 102.5 88.5 ............ 87.0 68.6 67.5 Mississippi .......... 119.6 71.9 71.9 Missouri .............. Kentucky 0.1 12.3 13.8 169.0 172.4 126.0 Tennessee .......... 99.8 102.7 102.4 TOTAL .......... 1,081.8 9 89 .4 9 1 4 .7 Note: (a) 0.5 0.2 0.5 0.5 46.3 72.4 0.3 (a) 1.1 1.0 Losses in transmission account for the excess o f shipments received over consumption for states having no significant marketed production. Less than 50 million cu bic feet. S o u rce: Minerals Yea rbook . 1 9 5 2 p r e p r in t . Expanding use has required increased pipeline capacity connecting the major supply areas of the Southwest with consuming areas. The rapid growth of demand for natural gas re quired the construction of pipelines to transmit the gas from major producing areas of Texas, Louisiana, Oklahoma, Kansas and New Mexico to major con suming areas in the midwest and northeastern parts of the country. Pipeline mileage for transmission of natural gas in the nation increased from 77,000 in 1945 to 125,000 in 1953, an increase of about 60 per cent. New construction of natural gas facilities author ized by the Federal Power Commission from 1947 to 1953 totaled 44,655 miles of pipelines at an esti mated cost of $3.6 billion. And the expansion of the natural gas transmission facilities is continuing—appli cations pending before the FPC on October 31, 1953, involved 8 , 0 0 0 miles of pipelines. To some extent, expanding demand can be accomo dated without new pipeline mileage. The delivery capacity of a pipeline may be enlarged by maintain 3Total shipments received may exceed consumption because o f losses in transmission. Page 127 ing a uniform and higher pressure throughout its length. This can be done by adding compressing stations to restore the pressure as the gas moves along towards its market. This means of increasing pipe line capacity is limited, however, by the strength of the steel pipe. Additional compressor stations have been added to the transmission pipelines serving some of the major areas of the district. No additional pipelines are currently under con struction to increase the capacity for serving the major cities of the district. Most of the new pipe line construction is devoted to serving the New York and New England areas, where little natural gas has been available heretofore. Three of the natural gas lines planned for construction during 1954 originate in Louisiana, and traverse parts of the Eighth Federal Reserve District on their way to their destinations north or east of the district. In addition, several pipe lines cutting across the district will be built parallel to existing systems. Underground storage facilities also help meet rising demands. The use of natural gas for house heating imposes a highly seasonal demand pattern upon the industry. To meet the firm requirements of residential cus tomers during peak demand periods, large customers, supplied gas on an interruptible basis, can be cut off. Some utilities have facilities for producing high BTU gas to help meet house heating peaks. Another solu tion to the problem is the storage of gas in geological formations, usually depleted oil or gas fields, located near the consuming areas. The distribution utility can pump gas into the underground formations in the summer when demands fall below the capacity of the transmission system and withdraw the stored gas in winter months when demands exceed the supply from the transmision pipeline. The use of under ground storage facilities enables pipelines to operate at a higher average rate of capacity, and eliminates the need for additional pipeline capacity that would be utilized only in the winter. Thus, use of storage facilities makes for more efficient operation. Underground storage has increased rapidly in recent years as the industry has attempted to meet the rising demands for service that exceed the capa city of the transmission system. The estimated ulti mate capacity of underground storage facilities in the nation in 1947 was 250 billion cubic feet and had risen to 1,735 billion cubic feet in 1953. Underground storage facilities exist in the district, and more are being developed. An underground storage project be Page 128 ing developed near St. Louis would enable Laclede Gas Company to supply house heating gas to ap proximately 50,000 additional customers. Construction costs of facilities for this storage project have been estimated at about $5 million. Southern Indiana Gas and Electric Company, which serves Evansville, Indiana, undertook drilling and other testing operations in 1953 to determine if a field, about 13 miles west of Evansville, would prove suitable for underground storage purposes. So far tests have been satisfactory and some gas has been pumped into storage. Gas is stored in two pools in Arkansas with maxi mum storage of 2.4 billion cubic feet. Another under ground storage facility in the district is located near Amory, in northeastern Mississippi, where an aban doned dry-gas field capable of holding 900 million cubic feet of natural gas is utilized. Louisville Gas and Electric Company owns a nearby underground storage facility with a capacity of over 3 billion cubic feet. Proved reserves have increased but at a lower rate than rising production. Since the district is largely dependent upon the resources of other areas for its natural gas, adequacy of the supply in other areas is relevant. Despite the rapid increase of gas production in the nation in recent years, estimated proved recoverable reserves have been increased by discoveries of new fields and new pools, extensions of known fields and revisions of prior estimates. At the end of 1953 reserves of natural gas in the nation were 2 1 1 trillion cubic feet, 28 per cent greater than at the end of 1947. About 70 per cent of total reserves is non-associated gas, that is, free natural gas not in contact with, nor dissolved in, crude oil in the reservoir. The remaining reserves are almost equally composed of gas dissolved in oil or free gas in immediate contact, but not in solution, with crude oil in the formation. Net production last year totaled 9.2 trillion cubic feet compared with 5.6 trillion cubic feet in 1947, an increase of 64 per cent. As a result of the more rapid rise in net production of natural gas than of proved reserves, these reserves at the end of 1953 were about 23 times annual output, compared with 30 times in 1947. With the rapid increase in gas transmission capa city, the amount of gas uncommitted to pipelines has decreased. Consequently, the decline in the ratio of reserves to production suggests that the rate of in crease in future gas consumption will be more closely related to forthcoming increases in reserves than in recent years. Proved reserves are estimates of the known gas supplies and do not include natural gas which may be subsequently discovered or lie in unproved portions of partly developed fields. Opinions as to the total ultimate reserves in the United States currently range from about 400 to 600 trillion cubic feet, or about two or three times the current proved recoverable reserves. Proved reserves of natural gas in the district are limited, and represent an insignificant portion of the total reserves of the United States. At the end of 1953 proved reserves in Arkansas totaled 1.2 trillion cubic feet; those in Illinois totaled 231 billion cubic feet, while those in Indiana were estimated at 36 billion cubic feet. These reserves on December 31, 1953, were 31 times annual output in Arkansas, but only eight times output in Illinois and only five times that in Indiana. Natural gas has become an important resource for district development. In the economy of the Eighth Federal Reserve Dis trict, natural gas—as a fuel and as a raw material—has taken its place as an important district resource. Its availability in expanding volume and at low cost lias become a significant element in the growth of job opportunities in many district areas and in improving the standard of living of many district residents. Fur ther, any appraisal of future industrial development in the district must take account of this expanding source of energy and raw materials. It should not be overlooked, however, that con tinued expansion in district use of natural gas is de pendent upon the national supply. Assurance of this supply requires continued discovery of new gas re serves, a problem closely allied to the exploration for oil, and increased production from proved reserves. Improved conservation of gas would also increase the supply and reduce the drain on the nation’s ultimate reserves. W il l ia m H. K e s t e r SUBSCRIPTIONS to the Monthly Review are available to the public without charge. For information concerning bulk mailings to banks, business organizations and educational institutions, write: Research Department, Federal Reserve Bank of St. Louis, St. Louis 2, Missouri. Articles or excerpts may be reprinted. A credit line would be ap preciated. OF CURRENT CONDITIONS T h e r e W ERE SIGNS in October that the “sidewise” movement of business activity in recent months may be turning into a gradual rise. Unemployment in the nation fell more than seasonally in early Octo ber to below 3,000,000. Production increased in a number of manufacturing industries. Judging from September contract awards and housing starts, con struction also continued at high levels. On the other hand, bank loan demand was weak and farm com modity prices declined. Likewise, more signs of improvement than weak ness could be seen in the Eighth Federal Reserve Dis trict. Employment in the district’s major cities showed some increase in the month, reflecting both seasonal gains in trade and manufacturing, and the impetus given by developments in Louisville and Little Rock. Construction activity, which has been one of the strengthening factors in the business situation this year, continued its rapid pace during October. D e partment store activity, according to preliminary estimates, increased more than the seasonal amount during October and was at an adjusted rate close to the average for the first nine months of the year. However, bank loans in the district rose less than seasonally. And prices of farm products continued downward moderately during October, further de pressing income prospects in the farm sector of the district economy. Employment Unemployment in the nation declined by 360,000 from September to early October to 2.7 million. Total farm and nonfarm employment was estimated by the Bureau of the Census at 62.1 million, virtually un changed from the September level. Improvement in district labor markets in October reflected both seasonal influences and the expansion of district facilities. In most areas insured unemploy ment continued a gradual decline in October. Most auto plants completed re-tooling for model changeovers and called back workers temporarily laid off. Automobile manufacturing employment in Evansville is expected soon to exceed its previous peak level. Seasonal slack in shoe and apparel production and Page 130 strikes at two major electrical equipment manufac turers partly offset some pickups in St. Louis area manufacturing employment. By the end of the month, however, one of the electrical plants had resumed production. Additions to the district’s plant capacity and de fense facilities aided the labor market in several areas. In Louisville, General Electric Company began hiring 2 , 0 0 0 more workers to staff its newly completed refrigerator plant at Appliance Park. Construction employment in the Little Rock area is growing as work on the Little Rock Air Base progresses from the clearance and grading stage to paving and the construction of base buildings. Further increases are expected in the next several months. Hiring of work ers for a new automobile frame plant provided some relief in the St. Louis area where employment has been substantially below year-earlier levels. Industry The output of factories and mines in the Eighth District and lumber production in the South continued to edge upward in October, according to early re ports. Steel ingot production in the St. Louis area advanced 12 percentage points from September to 75 per cent of capacity. Coal output, judging from the trend of the past two months and October trade reports, has picked up. Crude oil output remained high. In the southern forest region, production of pine increased 3 per cent in early October while hardwood mills operated at 95 per cent of capacity, compared with 90 per cent in September. In Kentucky, 25 whiskey distilleries were in operation at the end of September compared with 14 operating a month earlier. Industrial electric power consumption figures for September indicate that the gap between this years and last years industrial activity in the district is narrowing. Electric power used by selected industrial firms in major district cities was only 4 per cent below a year ago, whereas in August it was 12 per cent below that of 1933. From August to September this year, consumption increased 9 per cent, compared with no change in the same months last year. Construction The construction industry continued to be a strengthening factor in the economy. Total contract awards and residential awards in the district in Sep tember were higher than in any other month of this year and awards in the nation were above the high average of recent months. The cumulative total of district awards for the first nine months was 1 2 per cent higher than the value in the same period of last year. In the nation total contracts awarded in the first three quarters were also about 1 2 per cent higher than in 1953. Earlier this year the district gain in contracts over a year ago had been substantially smaller than the national increase. Trade Department store sales increased more than the seasonal amount during the first three full weeks of October and were at an adjusted rate close to the average for the first nine months of the year. Inven tories at department stores were lower than a year earlier. However, commitments to buy were larger than a year earlier. Furniture store volume at reporting district stores in September was somewhat less than in August, but was 6 per cent larger than in September, 1953. The retail value of inventories held by reporting district department stores and furniture stores on September 30 increased over that at the end of August. In comparison to a year earlier, department store inventories were 7 per cent lower while at furni ture stores they were at about the same level. The volume of outstanding orders at district department stores on September 30 was 6 per cent below that a month ago, but was substantially larger than a year ago. Banking From mid-September to mid-October business loans at district weekly reporting banks expanded less than seasonally. Net additions in loans to commodity deal ers were less than usual, reflecting the reduced volume of cotton moving to market. Outstanding indebted ness by metal manufacturers continued to decline. And contractors made net repayments in contrast to net borrowings earlier in the year. On the other hand, manufacturers of textile, apparel and leather goods added to their indebtedness although a reduction usually occurs at this season. Loans on securities and real estate and “other”, largely consumer, loans were up moderately. Over the period, reserve positions of these banks were relatively easy, as a net inflow of funds from other areas more than offset seasonal currency drains. These banks purchased a substantial amount ($80 million) of securities, primarily Treasury bills and the new Treasury notes, and built up their cash assets. As a result of both bank credit expansion and net inflow of funds, the money supply in the district rose during the four weeks. Reflecting the acceleration in the rate of saving this year, there has been a more rapid growth in time deposits at commercial banks, in both the district and the rest of the country. For the first three quarters of 1954, time deposits at district member banks rose 7 per cent, compared with 4 per cent in the correspond ing period a year ago and a 3 per cent average for the like periods of the other postwar years. Most banks shared in the gain. As a group, time deposits in reserve city banks increased at a faster rate than in country banks, whereas in the previous four years the greater expansion was at country banks. Within the country bank group, banks in towns of less than 15,000 population had a smaller rate of increase in savings accounts. Time deposits in the district por tions of Indiana and Illinois showed the smallest growth of any district areas. A griculture The farm sector of the district economy was de pressed further during October by lower prices for farm products. Reduced prices of hogs and broilers contributed most of the decline; crop prices increased slightly. Rainfall during October was near or above normal in many parts of the district and more than last year in most areas. The moisture materially improved extremely poor pasture conditions and encouraged heavy seedings of winter and early spring pastures which may partially alleviate feed shortages existing on some farms. Both rainfall and temperature have been excellent for harvesting, rapid curing and strip ping of the district tobacco crop which this year prom ises to be high in quality and per acre yield. However, fall rains delayed the soybean harvest and caused moderate declines in yield and quality. Reflecting a level of marketings below expectations, soybean prices increased moderately during the fourweek period ending at mid-October. In addition, the rains had an adverse effect on the quality of cotton harvested and delayed the com harvest, but did little or no damage to the latter crop. A record rice crop of 17 million bags was har vested in district states. However, inadequate storage facilities had a depressing effect on prices and in* creased the handling cost of the crop. Cash farm receipts for August were unchanged from a year ago but, for the first eight months of 1954, were 6 per cent below the same period last year. Page 131 The DISTRICT RECORD V AR IO U S IN DICA TO RS OF INDUSTRIAL ACTIVITY Sept. 1954 Industrial Use o f Electric Power (thousands o f K W H per working day, selected industrial fiims in 6 district citie s)....................................................................................... Steel Ingot Rate, St. Louis area (operating rate, per cent o f ca p a city )........................... Coal Production Index— 8th Dist. (Seasonally adjusted, 1 9 3 5 -1 93 9 — 1 0 0 ) ................. Crude Oil Production—8th Dist. (Daily average in thousands o f b b ls .)........................ Freight Interchanges at RRs— St. Louis (Thousands o f cars— 25 railroads— Terminal R. R. A ssn .).......................... .......................................................................................................... Livestock Slaughter— St. Louis area. (Thousands o f head— w eekly a vera g e).......... Lumber Production— S. Pine (Average weekly production— thousands o f bd. f t .) . . . . Lumber Production— S. Hardwoods. (Operating rate, per cent of ca p a city )............ Percentage Change* Aug. 1954 Sept. 1953 12,547 63 125 p 323.8 + 9% + 26 + 9 + 1 — 4% — 31 -— 10 + 5 89.6 113.4 182.4 92 — 4 + 25 + 2 — 1 — 17 + 9 -0 —-1 6 * Percentage change figures for the steel ingot rate, Southern hardw ood rate, and the coal production index, show the relative per cent change in production, not the drop in index points or in percents o f capacity, p Preliminary. A t BANK DEBITS1 Sept. 1954 (In m illions) Six Largest Centers: East St. L ouisNational Stock Yards, 111.................................... $ 130.0 135.6 Evansville, Ind.............. Little R ock, Ark............ 162.8 L ouisville, Ky................. 708.7 752 .3 Memphis, Tenn.............. St. Louis, M o................. 1,938.4 Total— Six Largest C enters...........................$ 3,8 27 .8 Other Reporting Centers: Alton, 111. ......................$ Cape Girardeau, M o .. El D orado, Ark.............. Fort Smith, Ark.............. Greenville, Miss.............. Hannibal, M o .. ............. Helena, A r k .................... Jackson, T enn................. Jefferson City, M o ......... Ow ensboro, Ky................. Paducah, Ky..................... Pine Bluff, Ark................. Quincy, 111........................ Sedalia, M o ..................... Springfield, M o.............. Texarkana, Ark......... .. . 33.7 14.1 27.9 49.1 2 9.0 8.9 12.8 26.1 69.9 38.5 31.1 39.2 12.7 71.8 17.4 TC ™ t7 r?t h e r ...............$ 5 1 7 .6 T otal— 22 Centers . . $ 4 ,3 4 5 .4 Percentage Change from Aug. Sept. 1954 1953 + 4 % — 2 % — 10 — 14 + 3 + 7 — 6 + 3 +28 +14 + 4 — 3 + 5 % + —0—% — + 6 + 8 — 9 +37 + 2 +87 +23 +24 + 3 — 3 + 37 f ? + 2 — 2 + 3 + 9 % + 6 % 1 % T f + } — 1 + ,5 — 19 -Q -% + 1 % l Debits to dem and deposit accounts o f individuals, partnerships and corporations and states and political subdivisions. RETAIL FURNITURE STORES Net Sales Inventories Sept., 1954 Sept., 1954 com pared with com pared with A ug., ’ 54 Sept., *53 Aug., ’ 54 Sept., ’ 53 — + — — — — + 2% 2 14 15 18 17 7 + 6% +19 — 1 —0 + 4 + 6% + , ® +10 4 -1 0 —0—% + o — 3 — 1 +14 + 5 + 1 , * Not shown separately due to insufficient cover age, but included in Eighth District totals. 1 In addition to follow in g cities, includes stores in Blytheville, Fort Smith and Pine Bluff, Arkansas; H op kinsville, O w ensboro, Kentucky; G reenw ood, Missis sippi; and Evansville, Indiana. 2 Includes Louisville, Kentucky; and N ew Albany, Indiana. P E R C E N T A G E D IS TR IB U TIO N O F FU R N ITU R E SALES Sept., ’ 54 Aug., ’ 54 Sept., ’53 Cash S ales.................... 14% 14% 1 4% Credit S ales................. 86_____ 86_____ 86_____ Total S ales.......... 100.% 100% 100% (1 9 4 7 -1 9 4 9 = 1 0 0 ) Unadjusted Aug. 1954 July 1954 Aug. 1953 Total .......... 211.2 p 193.8 188.0 Residential 282.2 p 249.1 176.9 All Other 178.3 p 168.1 193.2 Seasonally adjusted T o t a l............ 173.6 p 152.5 154.0 Residential 235.2 p 212.9 147.4 A ll Other 145.0 p 124.5 157.1 * Based on three-m onth m oving average (centered on m id-m onth) o f value o f awards, as reported by F. W . D od ge Corporation. p Preliminary. LITIES OF EIGHTH DISTRICT MEMBER BANKS + 8 +12 +23 — 7 +33 +11 — 9 — 8 — 15 INDEX OF CON ST RU C TIO N CONTRACTS AW ARDED EIGHTH FEDERAL RESERVE DISTRICT* Percentage Change Jan. thru Aug. Aug. ’ 54 1954 Aug. from com pared with 1954 Aug. ’53 1953 1952 Arkansas. . $ 20,805 + 6 % — 4 % - - 1 3 % Illin ois. . . 137,304 — 4 3 + 1 Indiana. . . 93,892 — 5 - 0- 0Kentucky 3 0,935 — 1 — 8 - 5 Mississippi 22,6 00 + 10 — 21 - 7 Missouri . 7 8,544 — 3 — 3 - 1 Tennessee. 25,657 — 10 — 9 - -1 5 7 States . $ 409,737 — 3 % — 3 % - - 4 % 8th D ist.. $ 167,817 — 1 % — 6 % - - 5 % Source: State data from U SD A preliminary estimates, unless otherwise indicated. 5 % — 1 IN D E X O F BANK DE B ITS— 22 Centers Seasonally A djusted (1 9 4 7 -1 9 4 9 = 1 0 0 ) 1954 1953 Sept. Aug. Sept. 139.4 137.6 138.4 8 th Dist. Total*. St. Louis Louisville Area2 Louisville. . . . Memphis .......... Little R ock . . . . Springfield.......... CASH FARM IN C O M E (In thousands o f dollars) (In M illions o f Dollars) W eekly Reporting Banks Change from Sept. 15, 1954 Oct. 13, 1954 Assets Loans (N et)l Business and A gricu ltu ral.......... Security................... ........................ Real E state.................................... Banks .............................................. Other (largely con sum er).......... U. S. Government Securities.......... Other Securities ... ............... Cash Assets......................................... Other Assets....................................... Total Assets................................. $+ + + $1,377 681 38 2 68 36 3 72 1,198 + + + + + 222 964 39 $3,800 $+ 52 29 3 - 014 5 74 7 30 - 0163 A ll M em ber Banks Change from Sept. 29, August 25, 1954 1954 $ 2,101 $ + 33 2,130 448 1,433 57 $6,169 + § + 2 + 64 — 9 $ + 96 Liabilities and Capital Demand Deposits o f B anks............ Other Dem and D ep osits................. Tim e D eposits.................................... Borrowings and Other Liabilities. Total Capital Accounts ............... Total Liabilities and Capital . $+66 + 86 + 2 + 8 + 1 $ 806 2,143 542 65 244 $3,800 $ 782 3,712 1,171 75 429 $6,169 $ + 163 $+ + + + $+ 67 04 20 5 96 l Loan breakdowns reported gross for weekly reporting banks, not available for all m ember banks. DEPARTMENT STORES Percentage o f Accts. and Notes R eceiv a b l e , Outstanding Stock Sept. 1, 1954, co lStocks Turnover lected during Sept. on Hand Net Sales Sept., 1954 9 mos. ’ 54 Sept. 30, ’54 Jan. 1 to Excl. Instal. Instalment com pared with to same com p, with Sept. 30, A ug., ’ 54 Sept., ’ 53 period ’ 53 Sept. 30, ’ 53 1954 1953 Accounts Accounts 8th F.R. District T otal. . . + 6 % 2.72 2.55 17% 47% — 2% - 0- % — 7% Fort Smith Area, A rk .l. . . + 10 __ 42 — 2 2.36 2.44 — 5 — 8 Little R ock Area, A rk .. . . + 14 12 — 1 — 5 2.57 2.41 45 + 1 Quincy, 111.......................... — 3 2.59 2.47 - 1 + 4 + 1 Evansville Area, Ind. . . . b 3 . — 14 — 13 Louisville Area, Ky., I n d .. . b 7 — 1 — 3 — 14 2.91 2.72 20 50 Paducah, Ky........................ - 6 — 18 — 24 — 18 1.70 2.26 St. Louis Area, M o., 111.. . b 7 - 0— 9 2.83 2.57 19 53 r " + 4 Springfield Area, M o .. . . — 3 2.39 2.23 b 7 + 4 + 2 Memphis Area, Tenn......... - 0- 0- 1 2.75 2.67 14 35 + 1 All Other Cities 2 .............. — 14 — 10 1.84 1.97 10 42 — 7 + 7 IN D E X E S O F SALES A N D STOCKS— 8TH D IS T R IC T Trading days: Aug. 1954 111 100 110 112 116 119 119 ' 128 104 Stocks, unadjusted 4 .............................................. Stocks, seasonally adjusted 4 .............. ................ 3 Daily average 1947— 4 9 = 1 0 0 4 End o f Month average 1947— 4 9 = 1 0 0 Sept. 1954 111 104 r July 1954 89 Sept. 1953 110 103 138 129 Revised Sept., 1 9 5 4 - -2 5; A ug., 1954— 26; Sept., 1953— 25. 1 In order to permit publication o f figures for this city (or area), a special 2 Fayetteville, Pine Bluff, Arkansas; H arrisburg Mt. Vernon, Illinois; sample has been constructed which is not confined exclusively to department Vincennes, Indiana, Danville. Hopkinsville, Mayfield, O w ensboro, Ken tucky; C hillicothe, Missouri; Greenville, Mississippi; and Jackson, Tennessee. stores. Figures for any such nondepartm ent stores, however, are not used Digitized for in FRASER com puting the district percentage changes or in com puting department Outstanding orders o f reporting stores at the end o f September, 1954, store indexes. were 15 per cent larger than on the corresponding date a year ago. http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis
@FedFRASER