Oil and gas prices are very high, driving up the cost of gasoline and contributing to runaway inflation, but they are also supporting increased oilfield hiring and driving drillers to drill , the pipelines to be pumped and the refineries to continue producing their panorama of products. .
With oil at $105.75 a barrel and natural gas at $7.244 per thousand cubic feet on Monday, Waco economist Ray Perryman, state Rep. Brooks Landgraf and spokespeople for the Texas Alliance of Energy Producers and Austin-based Enverus Intelligence Research say prices will remain high. for a long time. They agreed with an April 19 analysis from the World Bank in Washington, DC, that Russia’s invasion of Ukraine “will alter trade flows, consumption and energy production for years to come.” .
“In the biggest energy shock since the 1970s, high commodity prices are adding to inflationary pressures,” the bank said.
Referring to European prices, which roughly parallel intermediate West Texas crude levels, he said, “The price of Brent crude will average $100 this year for the highest annual level since 2013. and it will moderate to $92 in 2023.
“Natural gas prices will be twice as high in 2022 as they were in 2021, and coal will be 80% higher, both all-time highs. High metal prices are driving up the cost of renewables, which rely on battery-grade aluminum and nickel.
Perryman said geopolitics and other factors “may temporarily cause rapid swings in either direction, but I think long-term average prices will be higher.”
“Even the U.S. Department of Energy forecasts recognize that global demand for oil and gas will continue to grow under a wide variety of circumstances, even as we move toward a more climate-sensitive energy framework,” Perryman said. , who lives in Odessa. “At the same time, recent measures taken by Russia are likely to significantly affect trade flows, transport costs and other factors.
“Producing oil with lower emissions, where the Permian Basin has a decisive advantage, will cost more and additional costs due to government policies seem likely. The logistical challenges posed by the Russian situation are likely to persist and investors are looking for substantial returns to fund major drilling programs in a more uncertain environment. All of these factors point to higher overall coins.
“This may be partially offset by further improvements in drilling and production technologies, but there are more factors driving prices up in the long term than driving them down.”
Landgraf expressed some uncertainty about the World Bank forecast, but he was optimistic about the future of the Permian Basin. “My crystal ball isn’t always crystal clear when it comes to predicting commodity prices,” the Odessa Republican said.
“I can’t say whether the World Bank’s projections will come true or not, but I’m certain that when it comes to global energy demand, the world should look to the basin for its oil supply. and natural gas,” Landgraf said. . “We have an abundance of crude oil and other hydrocarbons without any geopolitical conditions.
“Equally important, we have the people here in the West Texas oilfield with the know-how, ingenuity and safety track record to meet demand better than any other region in the world. It’s likely that instability in other parts of the world will lead to higher than expected energy prices, but I am convinced that stability in Texas and production in the Permian Basin could be the best antidote available.
Texas Alliance of Energy Producers President Jason Modglin said from Austin that the withdrawal of many countries from doing business with Russia “makes it harder to move products around the world, but it will make the United States and especially Texas much larger to meet the needs”. from Europe and Asia.
“We hope the Biden administration will think longer-term about oil and gas needs beyond a two- or four-year cycle,” Modglin said. “This demand is not going away. We need production from countries with high environmental and labor standards, and that’s the United States, not the rest of the world.
He added that high oil and gas prices “are not a boon to the energy industry as production costs are rising just as rapidly for sand, steel, labor and trucking.
“We need continued investment to keep production going, but we’ve seen many investors like big banks start either banning oil and gas investments or phasing them out in favor of alternative technologies,” he said. Modglin.
Enverus Intelligence Research Senior Vice President Al Salazar said the possible elimination of Russia’s 17% of global natural gas supply makes it “pretty easy to suggest that natural gas prices will remain high for years.
“Furthermore, seemingly indefinite and mounting energy sanctions against Russia make such a statement more likely than not,” Salazar said. “However, commodity prices, including natural gas, are highly cyclical. History shows that if prices remain high for a long enough period, the efficiency of supply and demand comes into play. The American shale revolution is a prime example of this.
He said the main indicators for the future will be the discipline exercised or not exercised by American energy producers, the continued globalization of the growth of liquefied natural gas and renewable energy production with the balance that develops between energy security and non-financial factors of environmental, social and governance considerations.
“Currently, our view is that U.S. natural gas prices appear increasingly influenced by international LNG markets,” Salazar said. “International natural gas trading prices at multiples of what U.S. natural gas prices clear should sustain the Henry Hub until infrastructure constraints become an issue.”
Based in Erath, Louisiana, the Henry Hub is a gas pipeline that is the official delivery point for futures contracts on the New York Mercantile Exchange. Owned by the Sabine Pipe Line Co., it connects to four intrastate pipelines and nine interstate pipelines.