High Oil Prices Continue To Drive Gas Prices Steadily Upwards

The development of unconventional oil resources outside the US frequently features in lists of events that could dramatically alter the global energy picture. But international development of unconventional resources of all kinds has been stymied by a range of above-ground factors, and EOG Resources does not expect their development to impact global markets for at least five years.

The Energy Information Administration’s latest estimates suggest that countries such as Russia, China, Argentina and Libya may hold vast unconventional oil resources. But there are several reasons why their development may not proceed at the same pace that analogous formations in the US have, such as strong environmental opposition – sometimes at the government level – as well as lack of oil and gas infrastructure, skilled labor and necessary equipment, and high barriers to entry for new players.

And that may help to provide support for oil prices. “We continue to be pragmatically bullish regarding oil prices, partially because we don’t expect any large international shale oil plays to impact global supply for at least five years,” said former chief executive Mark Papa during the company’s third quarter earnings call.

And while the company’s outlook for US oil production growth is more optimistic than that for international oil shale, EOG does anticipate that growth rates will trend lower. “Absolute 2013 total US oil growth will be less than 2012, and this trend will continue in subsequent years,” said Papa. He noted that EIA monthly data through August 2013, annualized, suggests full-year 2013 production growth will average 600,000 barrels per day compared to 1 million bbl/d last year.

Papa Bear

In contrast to its pragmatic bullishness on oil prices, EOG presented a grim outlook for North American natural gas prices. Looking out to next year, “we again plan to drill zero North American dry gas wells in 2014 because we see no light at the end of the gas oversupply tunnel until 2018”, said Papa.

EOG sees 2018 as a potential inflection point for the natural gas market, as it may mark the start of significant demand pull from outside North America. “2018 is when we’ll have the first significant impact of gas exports in the way of LNG from these converted former LNG import terminals,” said Papa. “That’s when we’ll really have the first meaningful impact.”