Analyst expects energy prices to soar higher

With world oil prices at a 13-year high and US natural gas prices not far behind, "for the first time in a generation, energy commodities have the price wind at their backs and will trade substantially higher in the future," said the top executive of Foresight Research Solutions LLC, New York.

April 14, 2004

2 min read

By OGJ editors

HOUSTON, Apr. 13 -- With world oil prices at a 13-year high and US natural gas prices not far behind, "for the first time in a generation, energy commodities have the price wind at their backs and will trade substantially higher in the future," said the top executive of Foresight Research Solutions LLC, New York.

"The oil price shock of the `70s enabled development of then high-cost petroleum resources in Alaska and the North Sea. Similarly, high energy prices in the present decade will allow development of our own era's high-cost energy resources . . . oil sands, liquefied natural gas, gas-to-liquids technologies, and others," said Daniel Nicholas, CEO of Foresight Research, in a recent report. Those additional resources will be needed to meet accelerating energy demand and replace faltering supplies "of cheap and politically secure oil and gas," he said.

Although it may take a few quarters for crude prices to drop from current levels in excess of $35/bbl (OGJ Online, Apr. 13, 2004), Nicholas said, "we believe that oil will settle in the $22-27/bbl range—a big step-up from its old range of $15-20/bbl. That should give producers cash to boost capacity."

Moreover, he said, "Energy shares should do well in this environment as investors come to accept that the price of oil has truly moved to higher ground."

Nicholas said, "The North American natural gas basin has its needle moving towards empty. Only LNG imports or continued demand destruction can balance US supply with demand. LNG will set the floor price of natural gas around $4/Mcf."