Energy report: Energy abundance

The Energy Report Week in Review

Peak oil or is it that oil has peaked. What a week in energy as history was made in more ways than one. Oh sure, you can focus on prices and economic fears in a week where risk aversion became the flavor of the day, yet if you do that, you might miss some of the more interesting stories that surround the complex. This was a week we saw the good side of high energy prices and how the quest for energy and profits inspired minds to take steps to solve some of the greatest challenges facing the energy industry today.

Do you remember a few years ago when we were told that US natural gas production had peaked. We were warned that as our demand for gas increased we would never be able to meet it. Well due to a slowing economy and because of new drilling technologies those fears were never realized. Instead of the projected natural gas shortages we now have a natural gas glut. And prices that were supposed to be on an everlasting upward trajectory instead hit the lowest level since March, 2002. This week, according to the Energy Information Agency, supplies of natural gas increased 65 billion cubic feet after last week hitting 3.323 trillion cubic feet. According to Bloomberg News inventories are the highest for that week since the department began publishing data in 1993.

Now normally you might expect that a drop in price like we had in the gas market would cause a drop in production leading to a price spike in the future. Yet new pressure drilling techniques are so much cheaper, producers can continue to produce as long as there is a place to store it. The Energy Department, according to Bloomberg News, says that peak natural gas storage capacity increased to 100 billion cubic feet to an estimated 3.889 trillion cubic feet as of April as operators expanded to meet rising production. The previous high for storage is 3.545 trillion cubic feet, reached on Nov. 2, 2007, according to the department. This is creating a situation for gas that is the most bearish in recent memory. This is great news for consumers as energy bills may drop anywhere from 15 to 25%. An incredible boost brought to you in part by the ingenuity of those in the energy industry.

And talking about ingenuity, how about that big oil discovery from BP? Imagine drilling almost 7 miles deep in the ocean and discovering billions of barrels of oil. High prices have opened of a number of possibilities that has pushed back “peak oil” theory for generations. The Wall Street Journal points out, “To get at the ultra-deepwater oil field, BP had to drill to record depths - deeper than Mt. Everest is high. Still, with oil at $70 a barrel, there could be $70 billion trapped in the ancient rocks. These are precisely the kinds of oil fields that were technologically off-limits until recently, when the combination of improved drilling technology and seismic imaging techniques brought them within reach. And BP’s latest find, coming a few years after another big find at the Kaskida field, just shows how the once-dismissed Gulf of Mexico could prove a source of abundant - and politically-stable - oil for decades to come.”

Yet at the same time the Journal says the discovery underscores exactly how tough the oil-exploration game is becoming. To actually pump the oil, BP’s technical challenges are just beginning; other Gulf fields have taken years to bring on line. At the same time, there could be a huge difference between the amount of oil in the Tiber field and the amount of oil that BP and other companies can actually extract. Some comparisons with Kaskida suggest recovery rates as low as 5-15%, which in a worst-case scenario could mean a paltry 150 million barrels of oil, or a weekend’s worth of global consumption. As time goes on and technologies improve this pumping could become easier and easier.

About the Author
Phil Flynn

Senior energy analyst at The PRICE Futures Group and a Fox Business Network contributor. He is one of the world's leading market analysts, providing individual investors, professional traders, and institutions with up-to-the-minute investment and risk management insight into global petroleum, gasoline, and energy markets. His precise and timely forecasts have come to be in great demand by industry and media worldwide and his impressive career goes back almost three decades, gaining attention with his market calls and energetic personality as writer of The Energy Report. You can contact Phil by phone at (888) 264-5665 or by email at pflynn@pricegroup.com. Learn even more on our website at www.pricegroup.com.

 

Futures and options trading involves substantial risk of loss and may not be suitable for everyone. The information presented by The PRICE Futures Group is from sources believed to be reliable and all information reported is subject to change without notice.


Comments
comments powered by Disqus