Economides: US gas price spikes expected


OFFSHORE TECHNOLOGY CONFERENCE, HOUSTON
US natural gas prices "definitely" will climb to $4/Mcf this fall, with world oil prices escalating to $40/bbl probably within a year, unless producers dramatically increase spending to offset depletion and to supply growing demand, a University of Houston professor told reporters at the Offshore Technology Conference Monday in Houston.

But that's nothing compared with what will happen when the real gas shortage hits North America within 2 or 3 years, says Michael J. Economides, coauthor of "The Color of Oil," a book about the economics of the oil and gas industry.

With rapid depletion of current gas resources and steady escalation of demand, Economides said, freezing Chicago residents will be paying a whopping $40/Mcf for gas in the middle of some not-too-distant winter. "It's the biggest energy story not being written about," he claimed.

Economides said US gas producers are not discovering enough new gas reserves to offset rapid depletion of current reserves and meet growing demand that is expected to hit 30 tcf by 2010. It's the same scenario that Matthew Simmons, president of Simmons & Co. International, Houston, has been arguing for years.

Moreover, Economides said many of the gas-fired power plants now being planned won't be built in time to meet demand projections. "You couldn't buy a turbine today if you wanted to. General Electric has a 3-year backlog," he said.

Still, he predicted, "We'll see $4 gas before $40 oil."

Oil prices
Economides expects world oil prices to spike again next year, however, because most OPEC members don't have the excess capacity to meet their new production quotas. "Saudi Arabia maybe has 1 million b/d of excess capacity. But the rest of them don't. Venezuela, [the US's] biggest supplier, is working hard to meet its present production quota," Economides said.

His supporters point out that he correctly predicted the last price peak of $30/bbl back when oil was still selling for $11/bbl.

At his OTC press conference, Economides rejected what he calls the "myth" of low lifting costs in Saudi Arabia and other major Middle East countries. Nor can big producers turn oil production on and off at will, he says. Any significant ramp-up in world oil production will take huge capital investment, said Economides.

Based on his "Production Activation Index" of the investment required to add one new barrel of daily oil production, Economides said such additions would cost Saudi Arabia and Venezuela's western oil-producing provinces some $3,500/bbl. Even allowing for the potentially huge reserves a new discovery could add in those countries, Economides said both Saudi Arabia and Venezuela would lose money on any oil market price less than $21/bbl�the same clearance level required for West Texas Intermediate crude.

"The Kuwait oil minister estimated that a $7 billion investment would be required to bring an additional 350,000 b/d production in North Kuwait, implying an activation index of $20,000/bbl. Iraq has announced that it seeks $30 billion for an incremental production of 4 million b/d, resulting in an activation index of $7,500/bbl," he said.

To turn a profit on that production, Iraq would need a market price of $76/bbl, while Kuwait's equilibrium oil price is an eye-popping $201/bbl, he figures. In contrast, Economides said, the mature shallow-water region of the Gulf of Mexico has one of the lowest activation indexes in the world�$1,000/bbl, about the same as West Africa. That translates into an equilibrium oil price of $4/bbl for the gulf and $6/bbl for West Africa.

Economides acknowledged that his Production Activation Index calculations are simplistic. Actual results will involve other factors, including shifts in market shares, the move to greater gas consumption, and the "seemingly-always underestimated positive effects of investing in technology," he said.

Nonetheless, said Economides, an average oil price of more than $25/bbl for the next 2-3 years "is not unrealistic."

Related Articles

BP to settle federal, state Deepwater Horizon claims for $18.7 billion

07/02/2015 BP Exploration & Production Inc. has agreed in principle to settle all federal and state claims arising from the 2010 Deepwater Horizon inciden...

Shell makes FID on Appomattox deepwater development in Gulf of Mexico

07/01/2015 Royal Dutch Shell PLC has taken a final investment decision (FID) on the Appomattox deepwater development, authorizing construction and installatio...

BHP, Woodside move to decommission Stybarrow field

07/01/2015 BHP Billiton Ltd. and Woodside Petroleum Ltd. have started preparations for decommissioning of the Stybarrow group of oil fields in production lice...

Tullow Oil provides production update on Jubilee, other fields

07/01/2015 Tullow Oil PLC reported that gross production for the Jubilee field offshore Ghana averaged 105,000 b/d in this year’s first half, up from 102,000 ...

USGS: Water usage for fracturing varies widely across shale plays

07/01/2015 The volume of water required to hydraulically fracture wells varies widely across the country, according to the first national analysis and map of ...

Contract let for converting FPSO for use in Libra field

06/30/2015 Jurong Shipyard Pte. Ltd. has let a topsides detailed engineering and procurement services contract to Technip SA as part of the conversion of a sh...

Survey begins of collaboration on the UKCS

06/30/2015

Deloitte has begun a survey about collaboration in the oil and gas producing industry of the UK Continental Shelf.

CNOOC starts oil production from Bozhong 28/34 oil fields

06/30/2015

CNOOC Ltd. reported the start of production from its Bozhong 28/34 oil fields comprehensive adjustment project.

Statoil submits amended PDO for Gullfaks license

06/30/2015 Statoil ASA has submitted an amendment to the plan for development and operations (PDO) for the Gullfaks license for the first phase of the Shetlan...
White Papers

2015 Global Engineering Information Management Solutions Competitive Strategy Innovation and Leadership Award

The Frost & Sullivan Best Practices Awards recognise companies in a variety of regional and global...
Sponsored by

Three Tips to Improve Safety in the Oil Field

Working oil fields will always be tough work with inherent risks. There’s no getting around that. Ther...
Sponsored by

Pipeline Integrity: Best Practices to Prevent, Detect, and Mitigate Commodity Releases

Commodity releases can have catastrophic consequences, so ensuring pipeline integrity is crucial for p...
Sponsored by

AVEVA’s Digital Asset Approach - Defining a new era of collaboration in capital projects and asset operations

There is constant, intensive change in the capital projects and asset life cycle management. New chall...
Sponsored by

Transforming the Oil and Gas Industry with EPPM

With budgets in the billions, timelines spanning years, and life cycles extending over decades, oil an...
Sponsored by

Asset Decommissioning in Oil & Gas: Transforming Business

Asset intensive organizations like Oil and Gas have their own industry specific challenges when it com...
Sponsored by

Squeezing the Green: How to Cut Petroleum Downstream Costs and Optimize Processing Efficiencies with Enterprise Project Portfolio Management Solutions

As the downstream petroleum industry grapples with change in every sector and at every level, includin...
Sponsored by

7 Steps to Improve Oil & Gas Asset Decommissioning

Global competition and volatile markets are creating a challenging business climate for project based ...
Sponsored by
Available Webcasts


OGJ's Midyear Forecast 2015

When Fri, Jul 10, 2015

This webcast is to be presented by OGJ Editor Bob Tippee and Senior Economic Editor Conglin Xu.  They will summarize the Midyear Forecast projections in key categories, note important changes from January’s forecasts, and examine reasons for the adjustments.

register:WEBCAST


Predictive Analytics in your digital oilfield - Optimize Production Yield and Reduce Operational Costs

When Tue, Jul 7, 2015

Putting predictive analytics to work in your oilfield can help you anticipate failures, plan and schedule work in advance, eliminate emergency work and catastrophic failures, and at the same time you can optimize working capital and improve resource utilization.  When you apply analytic capabilities to critical production assets it is possible to reduce non-productive time and increase your yield.

Learn how IBM's analytics capabilities can be applied to critical production assets with the goal of reducing non-productive time, increasing yield and reducing operations costs.

register:WEBCAST



On Demand

Cognitive Solutions for Upstream Oil and Gas

Fri, Jun 12, 2015

The oil & gas sector is under pressure on all sides. Reserves are limited and it’s becoming increasingly expensive to find and extract new resources. Margins are already being squeezed in an industry where one wrong decision can cost millions. Analyzing data used in energy exploration can save millions of dollars as we develop ways to predict where and how to extract the world’s massive energy reserves.

This session with IBM Subject Matter Experts will discuss how IBM Cognitive Solutions contribute to the oil and gas industry using predictive analytics and cognitive computing, as well as real time streaming for exploration and drilling.

register:WEBCAST


The Alternative Fuel Movement: Four Need-to-Know Excise Tax Complexities

Thu, Jun 4, 2015

Discussion on how to approach, and ultimately embrace, the alternative fuel market by pulling back the veil on excise tax complexities. Taxes may be an aggravating part of daily operations, but their accuracy is crucial in your path towards business success.

register:WEBCAST


Emerson Micro Motion Videos

Careers at TOTAL

Careers at TOTAL - Videos

More than 600 job openings are now online, watch videos and learn more!

 

Click Here to Watch

Other Oil & Gas Industry Jobs

Search More Job Listings >>
Stay Connected