OPEC crude oil basket price above $22 per barrel for third consecutive month

Petroleum News Alaska Staff

Natural gas wellhead price is projected to be approximately $2.90 per thousand cubic feet for 2002, compared to $4.10 per mcf in 2001; gas storage levels are still above the five-year average

By Petroleum News • Alaska

May marked the third consecutive month that the Organization of Petroleum Exporting Countries’ basket price averaged above $22 per barrel, the lower end of the organization’s target range, the U.S. Department of Energy’s Energy Information Administration said June 7 in its short-term energy outlook.

The EIA said the OPEC basket price has been above $22 per barrel since March 8, and is projected to remain within the target range throughout June, with prices rising at end-2002 and early 2003 before declining again in mid-2003. West Texas Intermediate was almost $1 per barrel higher in May than in April, averaging $27.04 per barrel.

Gas wellhead projected at $2.90 an mcf

In 2003 the EIA expects a return to more normal (lower) levels of gas in storage, continuing economic growth and rising crude oil prices should drive natural gas wellhead prices higher, probably into the range of $3.20-$3.30 per mcf.

The EIA noted that natural gas prices are higher now than they were in February, during the height of the winter and said it is atypical to see spot natural gas prices higher in the cooling season than during the heating season.

Moreover, the agency said, working gas in underground storage has remained at exceptionally high levels for the past several months.

The EIA natural gas storage report of June 6, for the week ending May 31, showed the amount of gas in storage at 1,893 billion cubic feet, up 105 bcf from the previous week, up 436 bcf from a year ago and 330 bcf (21.1 percent) above the five-year average.

The EIA said it believes a downward correction to below $3 per mcf is likely in the next two to three months if summer weather is normal or cooler than normal.

Gas prices likely to continue to rise, predicts rig publication

Best argument yet that higher base commodity prices constitute the new energy reality is evident by looking at how natural gas finding and development costs have increased for operators over the last few years.

While improved technologies have increased initial production rates and offset some of the increase in finding and development costs, cash production costs have been flat for the last decade, suggesting exploration and production firms achieved whatever efficiencies were available through systemic changes.

Lease operating expenses have gone up while overhead costs have gone down. Bottom line is that natural gas prices will be moving to a higher base level than was the case historically.

It is not uncommon anymore to see average gas prices above $3 listed as a necessity for the industry just to keep production flat.

This figure is up more than 75 cents in just the last five years. If average finding and development costs have moved up 40 cents, then base gas price necessary for minimal field activity is now well above $2.50 Henry Hub equivalent.