FORECAST: Slow conditions will contin-
ue well into 2010 and maybe later. Pric-
ing power will not return until sometime
in 2012 or 2013. There will be limited to
no new capacity in North America and
Western Europe.
OIL & GAS
A Roller Coaster in Pricing
Last year, when John Spears, president
of Spears & Associates, addressed the
crowd, oil prices were climbing toward
$140/barrel. By this year’s workshop,
they had fallen to $70, while gas
prices fell from about $9 to about $3.
“It’s been quite a year of adjustment in the oil and gas industries,”
Spears told this year’s audience.
Demand for oil and gas has
decreased, creating an excess inventory that Spears says probably won’t
right itself until late in 2010. Industrial use of gas, for example, has fallen
8% for the year, and Spears predicted
it would fall another few points by the
end of 2009. Also, because of the
about 32,000 gas wells (and over
8,000 oil wells) drilled in 2008, the
ability to produce has gone up.
“So with consumption down, and
ability to produce up, we’re stuck with
a lot of inventory,” Spears said.
Natural gas, which drives 75% of
drilling activity, is now running at a
rate of about 5 excess billion cubic
feet (Bcf) feet per day, he said. Total
gas inventories were about 550 Bcf
higher at the time of this year’s outlook workshop than in 2008, and
about 450 Bcf over the 5-year aver-
age, he said.
What this all means is that operators are scaling activities to reflect the
situation. Less drilling occurred in
2009 (Spears predicted at the workshop that about 12,500 gas wells will
be drilled in 2009 and 3,400 deferred
until 2010 or beyond), and many rigs
are not being used (he said about 30%
of new gas wells drilled are currently
left uncompleted).
Spears also predicted large scale
shuts-ins would take place beginning in
September 2009 and last until the current cold season, and “anytime you’ve
been shut down, gas prices fall out of
bed.”
Also, gas production is likely to
decline further going forward; as a
result of all these events, prices will
remain low probably until sometime in
2011 and maybe longer if LNG
imports flood the U.S. market, Spears
said.
The type of wells drilled going forward is also likely to change.
“There is tremendous incentive to
go off and drill the most productive
wells,” Spears pointed out, and since
horizontal wells are about four times
more productive than vertical wells,
they are likely to be favored.
FORECAST: Gas prices will not rise
above $6 MBTU until at least late
2010. U.S. gas output is forecast to
fall 1% in 2009 and 3% in 2010. Gas
well drilling will drop about 60% in
2009 vs. 2008 levels. The gap between
supply and demand will close some-
time in late 2010 or in 2011.
GLOBAL ECONOMY
Growth Indicators Heading to
Positive
While many of the market outlook
speakers this year had less than stellar
news to report, Farid Abolfathi, managing director, Country Analysis and Forecasting Group, IHS Global Insight,
began his talk with good news.
The world’s recession “essentially
ended in the second quarter, so the second half should see growth,” he said.
He showed attendees 20 of the indicators he analyzes and of those 20, 11 show
the world was moving in the right direction while 9 pointed downward.
One of those indicators, which he
called the yield curve, is especially favorable.
“This indicates the financial situation
has turned favorable for banks. They can
now borrow cheap and lend at higher
interest rates so this sector should
improve this entire year,” he said.
Another of the indices—the global
equity prices index—shows that the
stock market, while way below where it
was several years ago, started upward
in about March of this year.
“Going forward, we will see stock
prices rise further in the short term,”
he commented.
An index that measures manufacturing confidence shows that while the
world is at record lows, some stabilization has occurred recently, and one that
measures new orders also shows stabilization and should begin to rise rapidly
soon, Abolfathi said. Meanwhile, industrial production has bottomed out and is
not yet showing signs of recovery, but
US GAS PRICES
$ per Million BTU
US GAS SPOT PRICES
$ per Million BTU
