Regardless of the causes and responses to the global credit crunch, natural gas prices are going to return to double-digit levels during the next 18 months, according to two industry economic experts speaking Tuesday at the LDC Forum Rockies & West Conference in Irvine, CA. The fact the the financial crisis is global in scope ultimately will help pull the world out of it quicker, and energy prices will be quick to rebound, they said.
Paul Corby, senior vice president with Planalytics Inc., said that ultimately good risk management will be the key for successful energy industry players, and his fellow panelist at the LDC Forum, James Duncan, a Ph.D. economist and market research director at ConocoPhillips, said surviving stronger banks are needed because “banks have led economies out of recession” for more than 100 years.
“Price volatility is not going away and timing [for hedges] will be critical,” according to Corby, who emphasized that financial risk management will continue to be a key tool for gas buyers and suppliers alike.
Predicting there is going to be a “real tightening of supply,” Corby said he sees double-digit natural gas prices returning sooner rather than later. “Price volatility is not going away,” he said. “I’m a buyer in this environment. I think there will be double-digit gas prices as soon as late next year or early in 2010.”
In providing a generally optimistic outlook longer term, Duncan emphasized that banks, liquidity and climate change are all keys to the energy sector rebounding from the continuing financial meltdown. The fact that this time around the deep recession is global is a good thing to Duncan, who noted that more intellectual capital will be focused on resolving the crisis.
The obvious fact that global demand will drive energy prices is an established economic principle, Duncan said. And he sees climate change ultimately assuring that for the next five-to 10-years, natural gas demand and global prices will grow briskly. “In this environment, the necessity of risk management tools has never been more important.
“Future energy prices will hinge on global demand — doh! That’s not really very profound, but it’s a key. A whole set of new rules on climate change are ultimately going to affect gas prices. Natural gas is clean-burning, efficient, and you have to control the carbon combusition using natural gas, so as we move toward the climate change, power stacks will have to burn more natural gas to get under their carbon limits. This all means natural gas demand is going to go up on a long-term basis.”
And as the global economy works to get out of recession, demand for energy is going to have to stay brisk, Duncan said. “You come to the conclusion that the bottom line is supply, and we have plenty right now. Everyone is looking for that supply, and we’re not going to run out, but it costs more. On a long-term basis, I think natural gas prices are going to go higher, but not next year. In the short term, we’re well supplied, but longer term we’re going to have to compete on a global basis.”
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