Higher energy prices are the only long-term solution to the current crunch in energy supply in the US.
That general theme, sounded by Raymond James & Associates Inc. analyst Marshall Adkins, was echoed by other speakers as well at an oil field breakfast forum in Houston last week.
The meeting was sponsored by Resource Marketing International, a consulting firm, and Randall Morton International Inc., an advertising and public relations agency.
Bottom line: high prices
"Like the 1970s, this is an energy supply-constrained market," Adkins told forum attendees. "The bottom line is [that]$5/Mcf gas, $30/bbl oil, and $50 Mw-hr power are here to stay, longer term."
He estimates a benchmark US light, sweet crude oil price of $29/bbl in the second half of the year, while gas prices will remain strong but volatile, leveling out at $5-6/Mcf.
"Gas prices will get whipsawed this summer. Prices will weaken and then come back up," he said.
Craig Clark, Apache Corp. executive vice-president of US operations, agreed 2001 oil and gas prices will be "very good."
"The longer high commodity prices persist, the more ingrained they become in expectations," Clark said.
David Welch, BP's Houston regional vice-president, noted that prices inevitably rise when supplies decline and demand goes up.
"I think we could say we're pretty confident that we are nearing an energy crisis here in the US," Welch said. "If we get into this crisis mode where we do have some brownouts, not only in California but perhaps in the Northeast this summer, it's likely we could have some type of an energy policy that would evolve sometime later this summer."
He urged the oil and gas industry to deliver a unified message to Congress regarding its wishes on energy policy.
"There are lots of hydrocarbons in the US, but a lot of them are off-limits right now to drilling, so we need to have access to lands that are locked up and that we are not able to explore," Welch said.
"The second thing is that we have had tremendous technological innovations for the last 30 years. This technology now enables us to go in and produce oil and gas without doing any long-term environmental harm, and it has a very low noticeable temporary harm."
No quick fixes
Of an energy crisis, Welch said he does not see "any quick fix. I don't think there is going to be anything we can do over the next couple of months to deal with it."
Elements that might avert an energy crisis are access to new lands, both onshore and offshore; more infrastructure, including an Alaska gas pipeline, liquefied natural gas terminals, and power plants; and a streamlining of the permitting process to enable producers to get access to drilling faster.
"We need to think about ending some of these prohibitions we have in IranellipseThese sanctions actually just preclude the companies that are in the US from being able to go in and compete with the French and other companies that might be interested," Welch said.
"BP is the largest oil and gas producer here in the US, and closer to home here, we're the largest reserve holder in the Gulf of Mexico," Welch said. "Over the last few years, we've discovered 3.5 billion bbl net of oil in the Gulf of Mexico, and we've put in place contracts to enable those to come online very steadily."
Five years ago, BP produced 50,000 b/d from the gulf compared with 250,000 b/d now and a projected 750,000 b/d by 2007. "We'll ultimately get much, much higher than that," he said.