The number one question I get from investors considering investing in an oil and gas drilling project is “Do you think oil and gas prices will remain high?”
My quick answer to this question is: Yes – At least for the next 6 to 18 months. That is to say, I think oil and gas prices will remain at 2004 averages or better over this period. Why? Well oil and gas prices are supply and demand sensitive. The supply is constrained by the aggregate world oil producers’ ability to quickly pump, transport and refine more oil and LPG while the demand side is based on steadily increasing trends in worldwide petroleum energy consumption. While demand for oil and gas may eventually be slowed by long-term shifts to alternative energy sources, the investments and incentives to make that shift will be huge and will take time for new technologies to take hold.
Beyond the 6 to 18 month period the overall health of the world economy will play the biggest role in determining prices. Higher energy costs will put a drag on economic growth. Whether such a drag would be enough to slow, stop, or reverse the demand for petroleum products is anyone’s guess. But since we are dealing with a limited resource, we all know that the price of petroleum products will trend up over the long-term.
These are just my opinions. You will want to draw your own. One excellent source of trend data and forecasts is the US Department of Energy’s Short-Term Energy Outlook.
If you want to get even more input on future : Check out Jim Frazer’s “The Energy Blog”.
I invite your comments on this post as well as any questions you may have about directly investing in oil and gas projects. Just email me at: questions@lonestarsecurities.com and I’ll do my best to respond.
Joe Ireland
Managing Member
Lone Star Securities, Inc.
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