Oil, natural gas supply OK for 2006

The world may switch from oil-based energy at some point, but not because we run out of oil.

“The Stone Age did not end because they ran out of stones,” says John Wood, director of the Reserves and Production Division of the Energy Information Administration in Dallas, Texas.

“When a better alternative comes along, we'll use it,” Wood said during an address at the recent Texas Commodity Symposium, part of the Amarillo Farm Show.

Wood said “doom and gloom real soon” predictions about the impending disappearance of oil are not supported by facts.

“With more than 30 years of research, we are confident that doom and gloom prophecies are not true,” he said.

Prices, however, will remain an issue.

Going into 2006, “prices will be high,” Wood said, “but then prices will begin to drop. We still see a lot of uncertainty in the (short term) supply of crude oil and natural gas.”

He said natural gas and oil prices will be higher than year-ago figures early in 2006 and will be so high early on that average prices for the year will be greater than in 2005. He also said that from January until June, prices would drop.

One reason for Wood's optimism about a continued supply rests on an improved ability to extract oil efficiently, allowing companies to bring in oil from resources that were once too expensive to tap. The Canadian tar sand resource offers one example.

“We have 2.37 trillion barrels of oil in place in Canadian tar sand,” he said. “And 1.42 trillion gallons are recoverable. That's a 60 percent recovery rate and represents significantly more than the entire crude resource of the United States, 21 billion barrels.”

Wood said a lack of infrastructure to transport and market the Canadian tar sand oil to the United States economically remains an obstacle. “But it could happen. We could get the current world's production from Canadian tar sand.”

He said U.S. crude oil production peaked in 2002 and is going down. “We import more than 50 percent of our crude oil.”

He said crude prices would remain at $50 and higher per barrel into 2006. “But it likely hit the peak and will go down. Still, it's high.”

He said the world price for crude oil used to be set in Austin, Texas. “Now it's set in Saudi Arabia.”

Near term, he said oil and gas prices will remain high in the first three months of 2006.

Natural gas reserves are increasing in the United States, Wood said. U. S. production currently meets 85 percent of use. He says production will increase in 2006 after falling in 2005. He said the United States is adding more natural gas to storage than usual.

“We have 3 trillion cubic feet in storage, a 10-month supply. We produce less than we use in the winter but in November were able to store faster than we used despite disruptions (hurricanes). We have plenty to get through the winter.”

He said futures market prices for natural gas change “on perceptions, not facts. I think we could see a significant drop in natural gas prices from January to June.”

He says a number of wild cards may alter supply and prices. “A 2 percent change in supply and demand can cause a significant change in price.”

He said supply currently grows faster than demand, “especially with high prices.” Those high prices also provide incentives for drilling new wells.

Wood said if oil prices increase substantially, natural gas and coal prices will follow.

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