US gas prices on the rise

Lord Digby famously stated that, “Demand for oil is going to increase because of the massive expansion of the Chinese and Indian economies.” He could not have been more accurate with his prediction. Such global demand for a finite fossil fuel is being felt across the US this week as gas prices have grown exponentially by US$ 0.8 in two weeks, bringing costs to US$ 2.77 per gallon. But with the recent BP disaster within the Gulf of Mexico, the county knows firsthand the dangers of trying to relieve demand by mining in more challenging locations.

While many are commentators are forecasting higher oil and gas prices, executives within the industry are doubtful that higher prices will remain stable for very long because of the inability of people's incomes to cover the higher prices. Parts of the world that use much less oil and gas per capita may be able to sustain higher prices with less recessionary impact, but ultimately, all will be affected.

Currently, a high cost of oil production (or of any type of energy production) is seen as a marker for low ‘energy return on energy invested’ (EROEI). However it is important to be cautious about substituting higher cost energy sources for lower cost energy sources, as it can raise the cost to the consumer and lead to greater recessionary impacts.

To combat this and similar issues the O&G20 committee, the world leading authority on oil and gas technology solutions, have selected the thought leaders and top executives to meet at this year’s Next Generation Oil and Gas summit in Austin Texas this November.

Greg Smith, Head of US business for Repsol, and Ronald Cramer, a senior adviser from Shell, are amongst the attendees of this locked down meeting. Petrobas (one of the most active deepwater companies in the world) are expected to announce investments in new fields within PreSalt regions of Brazil.

“Demand for oil, natural gas, and electricity, is likely to fall over the next few years”, said the committee “because of increased recession and decreased credit availability”. This will not get adequate attention without looking at subsidies for renewables and nuclear power and how they are likely to decline, as governments find they are more and more financially stretched. Even considering these components, there may be pressure to reduce emissions and thus fossil fuel use requiring increased costs seen by the consumer.

The announcement of the meeting has been anticipated by the US oil and gas industry for some time, as potential exports to India and China are moving to the untapped coasts of east Africa and the Middle East. In conclusion the cost of sustainability will fall to the consumer but clever exploration and development within the industry will at least limit these costs.

Published on 12/10/2010

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