No one knows what will happen next with the energy industry because it changes from day to day and sometimes even from hour to hour.
Big companies hire the smartest people they can find and all they can do is weigh the multitude of factors and make their best guesses.
Then sometimes the relative weights of the factors shift and a new balance spills all the apples.
With the price of West Texas Intermediate crude oil at $82.25 per barrel and natural gas at $6.955 per million British Thermal Units Friday, industry spokesmen say a lot of things are pushing in different directions, but strong global demand and oil and gas supply shortages should keep prices where American producers can make a profit. A million BTUs are roughly equivalent to a thousand cubic feet.
Permian Basin International Oil Show President Larry Richards of Odessa chuckled that anyone who could accurately predict prices “would be a billionaire pretty quickly!
“I’ve learned that there are great business opportunities at either side of our cycles, but guessing what pricing will do in the future is a gift I don’t possess,” Richards said. “It’s in Saudi Arabia’s best interests to keep the price over $70, so I think it will stay there unless Russia, Venezuela or Iran are somehow able to dramatically increase their exports and get paid for them.
“The Saudis also want it under $110 to keep the U.S. shale players from starting big capital improvements like frac fleets and rigs. OPEC has learned they’re happy in that range and chastised U.S. players, now focused on a more disciplined cash approach, are pretty happy in the $70-$110 range as well.”
Richards said natural gas is the big unknown of the equation. “Its price has been artificially depressed for years based on its BTU equivalent to oil and several billion dollars have been spent deepening the channel in Corpus Christi for liquefied natural gas supertankers and other supertankers,” he said.
“It won’t take many LNG terminals being built, especially the offloading facilities in Germany and other European sites, to spike the demand and subsequently the price for natural gas for a decade. I think we’ll see a lot more gas drilling in the years to come, here in the Permian Basin and elsewhere.”
Based on its capacity to produce energy, Richards said, a million BTUs should trade for one-sixth the price of a barrel of oil, but even discounting transportion costs, gas is still way below that.
“That suggests significantly rising electricity costs for U.S. homes and businesses in the coming decade, but still at a deep discount to the rest of the world due to our large natural gas reserves,” he said.
Texas Independent Producers & Royalty Owners Association President Ed Longanecker said aggressive federal interest rate hikes, recessionary fears, a conflicted futures market and bearish sentiment “will be counter-acted by tight global supplies and growing demand exacerbated by a host of issues, including geopolitical conflicts, Russian sanctions, the escalating energy crisis in Europe, the Strategic Petroleum Reserve release winding down, limited output from OPEC-Plus, weather, an uptick in economic activity in China and poorly conceived federal energy policy.
“We should see upward pressure on commodity prices this year, which should continue in the first quarter as we start the new year under-supplied by a million to a million and a half barrels per day,” Longanecker said from Austin.
Possibly too conservative, oil futures contracts are $76.71 per barrel in November, $76.18 in December, $75.45 in January, $74.61 in February, $73.81 in March, $73.09 in April and $72.42 in May.
Jason Modglin, president of the Texas Alliance of Energy Producers, noted the difficulty in predicting prices but said “what is clear is that this winter the world will consume record amounts of coal for heating and electricity generation.
“The best opportunity for industry and politicians here and abroad to reduce emissions is American natural gas,” Modglin said from Austin. “Policies aimed at reducing the barriers to energy production, transportation and use should be elevated and supported by our elected officials.”
Panhandle Producers & Royalty Owners Association President Judy Stark said from Amarillo that natural gas “will be in high demand.
“I think gas prices may increase a bit but not too significantly,” Stark said. “Because of supply and demand, the price will still be higher than it was when Trump was in office. At that point natural gas was under $3, but now it’s 60 percent higher.”
Predicting that oil, somewhat less mercurial than gas, “will stay steady between $75-$80,” she said, “That’s certainly a good price if we can get the supply chains open enough to reduce costs.
“The biggest issue still lies with congressional spending and taxes raising inflation to an all-time high. I think the supply chain and manufacturing problems don’t get better. If we can’t get permits for pipelines expediently, whether through Congress or the Texas Railroad Commission, we will continue to create more expense for producers.
“So the price per barrel will not mean as much if the cost is two to three times higher,” Stark said.
Texas Oil & Gas Association President Todd Staples said from Austin that even with global disruptions, strong demand for oil and gas “will continue for the foreseeable future because the products derived are irreplaceable in meeting the everyday needs of families in Texas and across the world.
“Public policy plays a critical role in creating the certainty required for major capital investments in exploration, production, transportation and refining of the energy we need,” Staples said. “Unfortunately, policies coming out of Washington like permitting delays and regulatory uncertainty are actively discouraging domestic energy development, which can raise consumer prices and make our nation and trade allies more dependent on less reliable, less responsible sources of energy.”
And from Washington, D.C., Independent Petroleum Association of America President-CEO Jeff Eshelman said producers “are price takers, not price makers.
“As we approach winter, an annual season of increased demand, we urge the Biden Administration to remember that prices are controlled by commodity markets, not producers or refiners,” Eshelman said. “IPAA encourages the administration to convene with producers and discuss pathways for adequate supply for Americans and our European allies instead of making political attacks.”
