LSU energy center head expects low oil prices for several years
If you assume that markets are able to predict where oil prices are heading, we will be well into the next decade before a barrel of oil costs more than $100 again, says David Dismukes, executive director and professor with the LSU Center for Energy Studies. Even into 2016 and 2017, oil is expected to trade at less than $65, he says.
Of course, those predictions could change. But most analysts agree that oil prices are unlikely to rebound very far from their current sub-$50 level for at least another year or so, Dismukes told the Rotary Club of Baton Rouge today.
Low oil prices are “marginally beneficial” for Louisiana, he says, despite the negative impact on state government’s budget.
“We still have a lot of very positive announcements in industrial development,” Dismukes says. “Certainly, this is good for the refinery industry.”
Louisiana hasn’t had all that much crude oil drilling in recent years, he says, so there isn’t much drilling to lose, although oil service companies will be impacted. Low prices also are holding back development of the Tuscaloosa Marine Shale play that crosses the north side of the Capital Region. The TMS is the most expensive unconventional play for drillers in the nation, largely because it is still in its infancy, and therefore is most vulnerable when prices dip below $80 or so.
Average drilling time for a well in the TMS has been reduced and production rates have been encouraging, he says. But drillers that don’t have deep cash reserves to ride out the tight times could be in trouble.
Perhaps more troubling for Louisiana is Sasol Ltd.’s announcement this morning that it will put off making a final investment decision on a massive gas-to-liquids plant near Lake Charles. The company hoped to sell diesel fuel made from natural gas, and Dismukes says the economics of the project likely depend on a large difference between the price of natural gas and oil.
The oil price crash also could be a negative indicator for the Capital Region’s chemical industry, which is fueled by natural gas. Lower oil prices reflect weak growth in Asia, which means a weaker international market for the myriad products produced by Louisiana plants, Dismukes says.
“We could end up seeing a big pickup on natural gas prices again,” he says, because much of the natural gas production since the recession has been a byproduct of crude oil drilling. “What happens when that drilling stops, and that free gas stops?”
While media reports often emphasize a standoff between Saudi Arabia and American frackers when explaining why oil prices are so low, Dismukes says slowing growth in developing nations such as Brazil, India and China is an oft-overlooked but important factor.