Palone's Comments


Palone's Comments, Comments on Energy Issues and other issues of interest.

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Bill Palone

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Sat, 18 Jul 2009

Industry in Distress?

With the following information, it looks kind of bleak:

Last quarter exploratory drilling down 63% (year to year)

Last quarter development drilling down 46%

Drilling for Gas down 43%

Drilling for Oil down 53%

Petroleum product demand down 5.8% from last year.

None of the above sounds good. The ultra low sulfur diesel (that used by vehicles on the highway) was down 6.6% from last year, which indicates that the economic decline isn't over. It means that there isn't as much freight being moved, which indicates a sluggish economy. However, I had to make a short trip yesterday on the Interstate Highway and it did seem that there were more trucks on the road than I had been seeing.

Then we have some 'Guru' stating that we will see $20 oil by the end of this year. It brings back some not so pleasant memories of years past, for those of us that have been in this industry for 25 or more years. I personally don't think we will get that low, but I have been wrong before. China has a growing economy and they have been one of the leading consumption growth areas for the last few years. I haven't heard how India's economy is doing, but they were also a consumption growth area. I don't know if their (China & India) current growth rate is enough to offset the declines in the rest of the world or not.

But, once the rest of the world starts to recover from the current economic decline we will see the price of Crude Oil rebound quite quickly. The Natural Gas market, is another issue. Some claim that we have created another bubble with the shale plays. I question that, since most of the shale plays that I have seen, the decline curves are very tough. They will produce a lot of gas, but it takes a lot of years to produce that gas.

Now, if we can just keep the government from nailing the coffin lid down with punitive taxes and programs. Maybe we can all survive this slump.

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