Monday | October 23, 2000
Natural gas bills expected to rise, oil prices
to drop
Shortage of workers a problem in industry, energy
experts say
10/22/2000
By Terry Maxon and Jim Landers / The Dallas Morning News
Consumers may finally find some relief
from high crude oil prices next year, but
they'll not be so pleased with their natural
gas bills.
That's the warning from The Dallas
Morning News Energy Board, which
gathered last week in Dallas to take a look
at the energy world.
Like last year, the board addressed the
question of whether high oil prices could be sustained. But this year, the
board was talking about prices in the mid-$30s, a good $10 higher than a
year ago and triple the levels of late 1998.
The consensus among the seven industry professionals who make up this
year's board was that oil probably will fall into the $20s as more oil makes
its way into the markets. However, natural gas will probably hover at or
near its all-time highs above $5 because producers aren't able to ramp up
production quickly to build up inventories of gas, the panel said.
It's not because the industry doesn't know that the North American market
needs more natural gas – there just aren't enough qualified people – from
roustabouts to petroleum engineers – to find the gas, drill the well and bring
it to market, the board said.
"Our business in the U.S. is absolutely sold out," said Dave Lesar,
chairman, chief executive and president of oil services giant Halliburton
Co. "We cannot do another piece of work if it came in the door today, and
that would be true of all the other service companies."
t's hard to attract new workers because college graduates and blue-collar
workers alike know the industry is so cyclical and a handy target for
attacks from politicians, Mr. Lesar said.
"We have thousands of job openings in the U.S. today in Halliburton that
we can't fill; you literally cannot go out and find the people who want to
work in the oil fields," he said.
Houston energy consultant Amy Jaffe said the oil and gas industry made a
"tragic mistake" when it laid off large numbers of employees during the last
downturn in 1997 and 1998. The industry is used to thinking in 10-year
periods for its boom-and-bust cycles, but the distance from trough to peak
now is much shorter, only two to three years, she said.
When prices fell in 1997-98, "all the companies fired all their workers and
taught those people the lesson that it's not a reliable job, that if you have a
job in the oil patch, that's not a reliable place to work," Ms. Jaffe said.
Mr. Lesar said in hindsight, Halliburton did err when it retrenched in 1998
and 1999, cutbacks that included the elimination of more than 10,000 jobs.
And then there's the question of where companies will get the money to
drill the thousands of gas wells necessary to keep up with supply. Wall
Street and lenders have been slow to provide the money to expand
exploration and production.
Ray L. Hunt, chairman of Hunt Oil Co. in Dallas, said that technology
startups, the so-called "dot.coms," are getting many of the college
graduates and much of the investment money that once went to oil and gas
companies.
Mr. Hunt said the tech firms are attracting the speculative money that the
energy industry used to attract, the so-called "Las Vegas dollars" from
people willing to gamble to get a big return.
"You invest in this company and that well hits, the price of stock doubles,
and, boy, have you made a home run. If the well was dry ...," he said.
"And today, those dollars are not going into oil and gas" but instead into the
high-tech sector.
Tom Baker, president of TXU Electric and Gas, said a new technology
company can offer a much shorter payback to investors than the traditional
energy project. For example, a coal-powered power plant may take seven
years to plan, site, finance and build, and a gas-fired plant may take two
years.
"A dot.com can have failed, or made it 50 times over, in that period of
time," Mr. Baker said.
The panel members said they see oil prices going down during the next
year – assuming that cold winters, Saddam Hussein or other variables don't
cause major disruptions to the supply chain.
Noted oil historian and consultant Daniel Yergin said the oil market "is
tighter than it's been at any time since the early 1970s with the exception
of the Gulf crisis. And spare capacity, which is the ultimate stabilizer, is
down, and that's what makes the market vulnerable to disruptions, or
makes it very volatile."
Mr. Yergin said he expects oil prices a year from now to drop into the
"mid-to-upper 20s, with a lot of confusing volatility along the way."
Like most predictors, Luis Giusti, the former head of Venezuela's national
oil company, hedged his price prognostications on a lot of ifs.
"Provided that there are no major interruptions for political reasons that we
cannot guess right now, like there is a conflict, there is a war or something
radical happens with Iraq, I would think that prices are going to drop," said
Mr. Giusti, now a senior fellow at the Center for Strategic and
International Studies in Washington, D.C.
Throw in a harsh or mild winter, a robust economy or a lagging one, and
there are a lot of variables that will affect the price of oil, Mr. Giusti said.
So he preferred to put it in a range: from as low as $22 if demand weakens
and supplies are strong, or $27 to $28 at the high side. Mr. Hunt pegged an
upper limit of $27 to $28.
Mr. Lesar said supply should catch up with demand as some new oil fields
come into production. That will help change the market psychology about
shortages that has helped keep the price of oil high this year, he said.
Ms. Jaffe said she sees prices in the low $20s in fall 2001 – assuming that
there are no serious disruptions to the supply line.
"I'm going to assume that if it's been a whole year and we've been through
whatever Middle East war may or may not come, then we're just left with
whatever's left with the economy and our normal oil supplies," said Ms.
Jaffe, energy program coordinator at the James A. Baker III Institute for
Public Policy at Rice University.
Christine Hansen, executive director of the 37-state Interstate Oil and Gas
Compact Commission, said oil prices could well remain close to current
levels.
"Oil prices may be a little lower, but I think gas prices are going to stay up
there into 2002," Ms. Hansen said.
Prices for natural gas, which sold for not much more than $2 per million
British thermal units in early January, have climbed steadily since then and
have jumped to well more than $5 in recent weeks.
The higher gas prices have caused electricity bills to climb, but the biggest
impact is soon to be felt by customers who use natural gas to heat their
homes and businesses.
Users are getting squeezed between growing demand and stagnant supply.
Almost all new power plants being built use natural gas, but gas
exploration, discovery and production have lagged in recent years.
Mr. Baker said TXU is sending out notices to customers warning them that
they'll see high gas prices reflected in their utility bills. He said prices could
spike up even higher, depending on the severity of the coming winter.
Mr. Yergin said his firm is predicting that natural gas prices will average
around $4.30 next year, adding: "Of course, there is the assumption that the
economy will remain in good shape." Mr. Hunt pegged it a bit higher at
$4.50.
DAK |
