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Monthly Meeting - "Don’t Expect $90 Oil or $4 Gas Prices: Markets Have Lowered Price Expectations Since Mid-2017" presented by Arthur E. Berman

The Petroleum Club of Shreveport, 15th floor
Cost: $20, Children 10 and under $8

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Biography

 Arthur E. Berman, Director Labyrinth Consulting Services, Inc. Sugar Land, TX 77479

Arthur E. Berman, Director
Labyrinth Consulting Services, Inc.
Sugar Land, TX 77479

Arthur E. Berman is a petroleum geologist with 40 years of oil and gas industry experience. He is an expert on U.S. shale plays and is currently consulting for several E&P companies and capital groups in the energy sector.

During the past year, he made more than 25 keynote addresses for energy conferences, boards of directors and professional societies. Berman has published more than 100 articles on oil and gas plays and trends. He has been interviewed about oil and gas topics on CBS, CNBC, CNN, CBC, Platt’s Energy Week, BNN, Bloomberg, Platt’s, The Financial Times, The Wall Street Journal, Rolling Stone and The New York Times.

Berman is an associate editor of the American Association of Petroleum Geologists Bulletin, and was a managing editor and frequent contributor to theoildrum.com. He is a Director of the Association for the Study of Peak Oil, and has served on the boards of directors of The Houston Geological Society and The Society of Independent Professional Earth Scientists.

He worked 20 years for Amoco (now BP) and 20 years as consulting geologist. He has an M.S. (Geology) from the Colorado School of Mines and a B.A. (History) from Amherst College. Website: artberman.com

 

Abstract

Markets have lowered the marginal price of both oil and gas since mid-2017.

The marginal barrel of oil has fallen about 25% from $75 to $60 for WTI, and from $95 to $70 for Brent. The marginal mmBtu of gas (Henry Hub) has fallen almost 45% from $3.75 to $2.15.

Markets are in a continuous process of price discovery as the dynamics of supply, demand and inventories shift. From 2005 through mid-2014, oil prices averaged $86 per barrel (constant May 2018 dollars). Monthly prices fell from $112 to $32 per barrel between July 2014 and February 2016.

For the 18 months following that $32 low level, the price of the new marginal barrel was unclear. A key factor was the effect of tight oil on global supply and price.

Markets re-valued WTI prices lower because producers consistently said that they could make money at lower oil prices. Also, tight oil horizontal rig counts increased 2.5 times--from 193 in May 2016 to 480 in May 2017--at oil prices less than $60 per barrel. Markets took that as confirmation that the break-even price for tight oil was less than $60 per barrel WTI.

Henry Hub gas prices averaged $8.00 per mmBtu (May 2018 constant dollars) from 2002 through 2008 as domestic supply decreased and increases in global oil price pulled gas prices up with them. The increase in shale gas production that began after the 2008-2009 Financial Collapse has been the primary factor in gas price formation.

The main reason for lower pricing natural gas pricing has been the historic production surge since January 2017 and the expectation that abundant supply should characterize the near- to medium-term future. Dry gas production increased 10.7 bcf/d over that 16-month period.

All U.S. production growth is from shale gas. Associated gas from tight oil plays is the second largest contributor to shale gas growth after the Marcellus Shale accounting for 28% of year-over-year shale gas growth in 2018.Total unconventional rig count suggests that production may increase well beyond EIA's forecast because rig counts continue to rise.

There are reasons to expect tighter oil and gas supply in the medium to long term than market pricing reflects. At the same time, the market is all of us and, therefore, provides the most inclusive and comprehensive perspective at least for the near term.

Earlier Event: September 7
25th Annual ALTAPL/SGS Golf Tournament