A Houston-based forecasting
firm, Groppe, Long & Littell, says the United States is moving into a
new era of tight supplies and higher prices, following 14-15 years of very
low prices for both oil and North American natural gas.
According to an article
in the Oct. 19 Oil & Gas Journal, basic fundamentals of short supplies
and growing demand will push oil prices near $30/bbl by the end of this year
and boost North American natural gas prices as cheaper wholesale prices for
electricity increases public consumption. The OGJ quoted Henry Groppe, founder
and partner of Groppe, Long & Littell, a Houston-based market analysis
and forecasting firm with a reputation for predicting major price changes.
Groppe said, "We have run out of $1.50-$2/Mcf gas and $15-$20/bbl oil.
When that happens to a commodity, you have to have significant increases in
prices to bring things back in balance."
"The sharp drop
in world oil prices since Sept. 11 is "an overreaction to the view that
a soft economy is going to cause a significant decline in oil usage. Historically,
it's just the reverse of that -- the only time we have a significant decline
in oil usage is when we have big increases in oil prices," said Groppe.
short of world oil today," he said. "If we get the normal increase
of oil consumption in winter months, the Organization of Petroleum Exporting
Countries will have to increase production to keep prices from going off the
top of their scale."
Despite accelerated drilling,
Groppe said, "The search for major new world oil supplies and major new
North American gas supplies has been very disappointing."
According to the OGJ,
Groppe said four of the five largest non-OPEC oil producers have surpassed
their peak output.
U.S. production from
the Lower 48 states has declined 50 percent since from its 1970 peak. Each
of the other non-OPEC producers (the North Sea, China, Mexico) is following
that same pattern," said Groppe. "Canada is the exception because
of their heavy oil and tar sands with continued opportunity for long, slow,
continuous increases in production."
Within OPEC, he said,
only the key Persian Gulf producers still have the capacity to ramp up oil
That's particularly true
for Iraq, which has "done nothing in last 10-11 years to increase production,"
said Groppe, "Iraq, we think, will be the swing producer."
As for U.S. natural gas,
he said the nation had been lliving off existing gas reserves since the 1960s
and that Canada has been carrying the U.S. market for the last 8-10 years.
"If it hadn't have been for their willingness and ability to almost quadruple
their exports, we would have had a severe gas crisis," he said. "And
now they're in the same position we're in -- they've got a reserve life index
of about nine years, producing and selling everything they can every day."