Bob Silbernagel Column January 25, 2009

Energy conundrum: Lower consumer prices versus a thriving industry

As I filled up the Global Warming Gas Guzzler Thursday in preparation for this weekend’s trip into a mountains — through a snowstorm, most likely — I realized I was paying nearly $1.60 a gallon for the gas. Other stations were charging close to $1.70 a gallon.

What gives? The last time I filled the gargantuan tank on the Burb, as we lovingly call our old GMC Suburban, it was under $1.40 a gallon. And oil prices haven’t risen significantly since then.

A mystery like this requires consultation with an expert. How about Rex Tillerson, the CEO of ExxonMobil? After all, his company is the largest publicly traded oil company in the world and it earned $40 billion in profits in 2007. He should know a little about gas prices.

Gasoline prices are “too low.” Tillerson declared. Well, that was helpful.

I didn’t actually consult with Tillerson personally. I read his comments online from an interview he gave last Wednesday. And, the news story said Tillerson was joking, sort of. His more serious comment was, “Gas prices really had sunk lower than they should have based on the crude cost to the refiner. So it was apparent that they would come back up to a level that would support ongoing gasoline manufacturing.”

OK, I’ll buy that. Gasoline prices that mirrored those of the early 1990s seemed a little out of line in 2009, and too low to be sustained. But what does the future hold? A rapid return to $4 a gallon gas?

Mr. Tillerson didn’t say.

But the Energy Information Administration within the Department of Energy did say. Its forecast from mid-January suggests an average regular gasoline price for this year of $1.87 per gallon, rising to $2.18 for 2010. It predicts crude oil prices will rise above $40 per barrel this year, and average about $54 for 2010.

That’s a hopeful sign for those of us who drive vehicles and don’t want to see the high prices of last summer. But it is not necessarily the best news when it comes to stimulating more energy exploration and production in this country.

And what of natural gas, the high-octane fuel for this region’s economy over the past few years?

The Energy Information Administration is predicting only modest increases there, as well.

Currently, the Henry Hub spot price is below $5 per thousand cubic feet. The federal agency forecasts that it will average $5.78 this year, and rise to $6.63 in 2010. That’s a far cry from the nearly $12 per thousand cubic feet it was near just last July.

And that’s the optimistic forecast from a little more than a week ago. Here’s a dispatch from Reuters last Thursday.

“Energy analysts have cut their 2009 forecast for U.S. natural gas prices by an average of 25 percent since last quarter as a severe economic recession hits industrial fuel demand and more than offsets an expected slowdown in domestic production.”

Winter gas inventories are still at “comfortable” levels, Reuters said, and gas production is still expected to grow slightly over the coming year. But the shrinking industrial demand for natural gas will likely keep prices low.

As state lawmakers struggle over what to do with new gas drilling rules adopted late last year by the Colorado Oil and Gas Conservation Commission, there seem to be daily rumors about which gas companies may be pulling back, and how much, from their operations in western Colorado. Lawmakers are understandably concerned that the state not impose new restrictions which may further discourage gas activity in the state. I’ve written in several editorials that it makes sense to ensure the regulations meet the original intent of the Legislature when it directed the Oil and Gas Commission to develop them two years ago, but it makes little sense to get rid of the new rules entirely.

News stories in the past couple weeks tell of cutbacks in energy production from Canadian tar sands, to conventional Texas oil fields to Wyoming’s natural gas fields. And in the Marcellus shale field in Pennsylvania — one of the new natural-gas hot spots — it was announced just last week that one company has stopped payments for a recently leased parcel and no other company has offered to pick up the lease. It’s clear that the global economy and the current energy prices have far more to do with anticipated drops in production in Colorado’s gas fields than regulations that still have not been implemented.

I admit I’m torn. It’s great to fill up the Burb for under $50. It was occasionally over $100 last summer. But I wonder what will sustain this region’s economy, and help resuscitate the nation’s if energy production doesn’t begin to revive soon. We are many years away from seeing a sustainable economy based on solar and wind farms. 


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