Conoco's Perspective | Russell T. Rudy Energy LLC
A recent article in “Rigzone” summarized the remarks of Marianne Kah, Chief Economist at ConocoPhillips, at the Federal Reserve Bank of Houston last week.
Slow economic growth, especially in China, a warm start to this winter, increased shale production, Libya’s return to the market, and OPEC’s refusal to act as swing producer, all contributed to the recent collapse of crude prices. An exceptionally cold January and February have helped somewhat, but supply is still exceeding demand and will continue to do so in the short term. Kah predicts that price recovery will be gradual, and driven mostly by supply response.
The global economic recovery from the 2008-2009 financial crisis has been slow, and per capita oil consumption in the Western industrialized countries has continued to drop. Had per capital consumption remained at the level it was in 1985, global demand today would be at 135 million barrels of oil per day (bopd) instead of its current level of 90 million bopd.
U. S. oil production is at levels not seen since 1972, and will continue to increase through the short term as wells drilled before the price collapse continue to come on stream. However, Kah expects this trend to reverse as investment continues to diminish, new wells are deferred, and old fields continue to decline. She pointed out that the industry was investing 120% of cash flow over the past few years. This means companies were taking on debt which will no longer be an available.
On the natural gas front, the Marcellus and Utica shales in Pennsylvania and Ohio are pushing out other sources of production. The Marcellus in particular is much more prolific than originally thought and break even points continue to drop. Kah also cautioned against unfounded optimism for domestic LNG projects, citing rapidly expanding capacity in Australia as offering strong competition, especially in Asian markets.
To read the article in its entirety, please go to www.worldoil.com/news/2015/3/5/conocophillps-chief-economist-sees-gradual-market-recovery .
