Cheap Energy and Higher Productivity
In our June 27, 2012 Blog, we discussed how abundant newly recoverable supplies of shale gas, increased reserves in the ground in North America, and the retreat of the ice cap, would all contribute to a permanent lessening of energy prices. We further commented that lower energy prices would produce higher productivity in North America leading to greater competitiveness.
Prices of oil and natural gas have surged recently because of the heat wave that is progressively engulfing North America aa it moves across the continent. This has caused a temporary surge in prices. Readers should not be misled by this temporary phenomena.
In an update to those comments, we quote some leading sources as follows.
Jul 6/12 Mackie Research
ENERGY UPDATE – OIL AND GAS COMMODITY OUTLOOK
Given the significant fall in crude oil prices and the uncertain outlook for world economic growth we are decreasing our 2012 WTI forecast from US$100/bbl to US$90/bbl and our 2013 WTI forecast from US$105/bbl to US$85/bbl. We have decreased our 2012 Brent forecast from US$115/bbl to US$105/bbl and our 2013 forecast from US$110/bbl to US$100/bbl.
Despite higher demand, US natural gas inventories remain well about average. We are maintaining our 2012 NYMEX natural gas forecast of US$2.75/mmbtu and our 2013 NYMEX forecast of US$3.00/mmbtu.
Monday July 9, 2012 Standard & Poor’s published a report stating – “In our view, gas prices won’t rebound quickly. Gas is likely to stay plentiful in the next 12 months in part because oil wells liberate it. And drilling for oil continues because it sells for about six times gas on an energy equivalent basis.”
“And we think that [natural gas liquids] NGL’s can’t prop up profits of even liquid-rich gas wells indefinitely. We are already seeing price drops for some types of NGL’s such as ethane as their supplies surge.”
S&P forecasts natural gas prices to average to average around around $2 per million BTY in 2012 and edge up to $2.75 in 2013.
Lower energy prices mean a surge in productivity and cheaper costs for multitudes of industries. Plastics will benefit. Petrochemical companies will benefit. Electric Utilities will have cheaper input fuels. Transportation will benefit and so on.
What may not benefit is the exports of Canadian heavy oil and natural gas, with gross proceeds weakening and the Canadian dollar following.
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Views expressed are opinions and not investment advice. Persons investing should retain a licensed professional to guide them and not rely on the opinions expressed herein. This report is neither a solicitation nor a recommendation to buy or sell securities. We are not a registered investment advisor nor a broker-dealer. The information contained herein is based on sources which we believe reliable but is not guaranteed as being accurate or a complete statement or summary of the available data.