Best of the Week
Most Popular
1. The Trump Stock Market Trap May Be Triggered - Barry_M_Ferguson
2.Why are Central Banks Buying Gold and Dumping Dollars? - Richard_Mills
3.US China War - Thucydides Trap and gold - Richard_Mills
4.Gold Price Trend Forcast to End September 2019 - Nadeem_Walayat
5.Money Saving Kids Gardening Growing Giant Sunflowers Summer Fun - Anika_Walayat
6.US Dollar Breakdown Begins, Gold Price to Bolt Higher - Jim_Willie_CB
7.INTEL (INTC) Stock Investing to Profit From AI Machine Learning Boom - Nadeem_Walayat
8.Will Google AI Kill Us? Man vs Machine Intelligence - N_Walayat
9.US Prepares for Currency War with China - Richard_Mills
10.Gold Price Epochal Breakout Will Not Be Negated by a Correction - Clive Maund
Last 7 days
Silver Outlook Is 'Excellent' - 23rd July 19
Why The Coming Silver Rally Might Be The Greatest - 23rd July 19
We Are in for Decades of Ultra-Loose Monetary Policy - 23rd July 19
Gold & Gold GDX Stocks Ripping. What’s Next? - 23rd July 19
Stock Market Breadth Warning Signs for the Stock Market’s Rally? - 23rd July 19
U.S. Recession Watch: The Six-Cycle Forecast - 23rd July 19
US Dollar Index tightly wound between: US Bond Yields down on safety flows - 23rd July 19
Stocks Bull or Bear? The Market’s Message - 23rd July 19
This Dividend Aristocrat Is Leading the 5G Revolution - 22nd July 19
What the World Doesn’t Need Now is Lower Interest Rates - 22nd July 19
My Biggest 'Fear' For Silver - 22nd July 19
Reasons to Buy Pre-Owned Luxury Car from a Certified Dealer - 22nd July 19
Stock Market Increasing Technical Weakness - 22nd July 19
What Could The Next Gold Rally Look Like? - 22nd July 19
Stock Markets Setting Up For A Volatility Explosion – Are You Ready? - 22nd July 19
Anatomy of an Impulse Move in Gold and Silver Precious Metals - 22nd July 19
What you Really need to Know about the Stock Market - 22nd July 19
Has Next UK Financial Crisis Just Started? Bank Accounts Being Frozen - 21st July 19
Silver to Continue Lagging Gold, Will Struggle to Overcome $17 - 21st July 19
What’s With all the Weird Weather?  - 21st July 19
Halifax Stopping Customers Withdrawing Funds Online - UK Brexit Banking Crisis Starting? - 21st July 19
US House Prices Trend Forecast 2019 to 2021 - 20th July 19
MICROSOFT Cortana, Azure AI Platform Machine Intelligence Stock Investing Video - 20th July 19
Africa Rising – Population Explosion, Geopolitical and Economic Consquences - 20th July 19
Gold Mining Stocks Q2’19 Results Analysis - 20th July 19
This Is Your Last Chance to Dump Netflix Stock - 19th July 19
Gold and US Stock Mid Term Election and Decade Cycles - 19th July 19
Precious Metals Big Picture, as Silver Gets on its Horse - 19th July 19
This Technology Everyone Laughed Off Is Quietly Changing the World - 19th July 19
Green Tech Stocks To Watch - 19th July 19
Double Top In Transportation and Metals Breakout Are Key Stock Market Topping Signals - 18th July 19
AI Machine Learning PC Custom Build Specs for £2,500 - Scan Computers 3SX - 18th July 19
The Best “Pick-and-Shovel” Play for the Online Grocery Boom - 18th July 19
Is the Stock Market Rally Floating on Thin Air? - 18th July 19
Biotech Stocks With Near Term Catalysts - 18th July 19
SPX Consolidating, GBP and CAD Could be in Focus - 18th July 19

Market Oracle FREE Newsletter

Top AI Stocks Investing to Profit from the Machine Intelligence Mega-trend

IEA Study: Global Energy Supplies Remain a Concern

Commodities / Crude Oil Dec 22, 2008 - 04:16 PM GMT

By: Joseph_Dancy

Commodities Best Financial Markets Analysis ArticleThe International Energy Agency (IEA) published a study last month that repeated their warning that  excessively low energy prices will discourage investment in exploration and production in light of the steadily rising costs of extracting and processing oil from increasingly difficult places. The lack of sufficient investment has serious implications for future energy supplies once the global economy recovers from its current descent according to the IEA.


The crude oil and natural gas sectors are capital-intensive industries, where massive amounts of investment are required just to offset depletion and to maintain production. The ongoing credit issues, with the weak product prices, have further complicated the ability to increase global energy supply.

Increases in demand from China, the Middle East, and India over the next two decades will far exceed the decline in consumption expected in developed countries in Europe and North America. These increases will have to be met from production frontiers that are much more difficult and expensive to develop, in areas for the most part controlled by national oil companies (charts from the Financial Times).

The study also found that the current decline rate in existing fields varies with reservoir characteristics and production methods, but on average a field declines around 6.7% per year even with production maintenance operations in place. The IEA found that this decline rate was accelerating.

The IEA expects crude oil demand in 2009 to remain roughly flat due to economic conditions. With a decline rate of 6.7%, and a demand of 85 million barrels per day, the world needs to discover or put online an additional 5 million barrels per day to replace production lost through natural declines.

The study indicates that one of the largest increases in oil production will originate in the Canadian tar sands. Cost of production in the tar sands are estimated at roughly $80 per barrel, well above current market prices.

Due to the current depressed market prices some expansion plans for the tar sands have already been cancelled or delayed. Environmental issues are also a concern, and the cost of labor and equipment for these remote areas has increased substantially over the last few years.

The energy futures market remain in what some have characterized as ‘steep contango'. Contango means that crude oil for future delivery is priced higher than today's futures or spot price. The condition allows operators to shut in their production today and lock in the higher prices by using the futures market (where the price of crude oil for April 2009 delivery is $3.90 higher than today's price). The contango condition has been interpreted as being bullish for prices.

Natural gas in storage ended the fill season roughly 1.6% below last year's level. The heating season has started – space heating is a major market for natural gas. The long term forecasts typically have predicted a winter colder than the last three years. The heavily populated Northeast and North central U.S. are expected to have below average temperatures, which should increase demand.

On the negative side the amount of natural gas demand from the electrical generation and manufacturing sector has declined significantly over the last quarter. Drilling budgets for natural gas prospects have been significantly cut by many companies, so the pace of supply gains should slow in 2009.

By Joseph Dancy,
Adjunct Professor: Oil & Gas Law, SMU School of Law
Advisor, LSGI Market Letter

http://www.lsgifund.com

Email: jdancy@REMOVEsmu.edu

Copyright © 2008 Joseph Dancy - All Rights Reserved

Joseph R. Dancy, is manager of the LSGI Technology Venture Fund LP, a private mutual fund for SEC accredited investors formed to focus on the most inefficient part of the equity market. The goal of the LSGI Fund is to utilize applied financial theory to substantially outperform all the major market indexes over time.

He is a Trustee on the Michigan Tech Foundation, and is on the Finance Committee which oversees the management of that institutions endowment funds. He is also employed as an Adjunct Professor of Law by Southern Methodist University School of Law in Dallas, Texas, teaching Oil & Gas Law, Oil & Gas Environmental Law, and Environmental Law, and coaches ice hockey in the Junior Dallas Stars organization.

He has a B.S. in Metallurgical Engineering from Michigan Technological University, a MBA from the University of Michigan, and a J.D. from Oklahoma City University School of Law. Oklahoma City University named him and his wife as Distinguished Alumni.

Joseph Dancy Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules