A wise person once defined insanity as doing the same thing over and over again and expecting different results. In the wake of civil unrest mounting in the Middle East and skyrocketing energy prices, it’s safe to say that our nation’s backward energy policy continues along the path of lunacy.

For decades now, our nation’s energy policy has brought about significant economic hardship that otherwise could have been avoided. From the oil embargo of the 1970′s to constant price fluctuations dictated by OPEC nations, the U.S. remains handcuffed by energy dependency from unfriendly and unstable countries. The drumbeat has always remained, “Relieve our nation’s dependency on foreign oil.” But today’s problems bring more importance to another familiar mantra, “Ensure our nation’s energy security.”

The political turmoil sweeping across countries like Egypt, Libya, Bahrain, and Tunisia have resulted in rising oil and gasoline prices, increased inflation, devalued currencies, and diminishing stock values. According to the AAA, American consumers are now paying an average of $3.17 a gallon for regular gasoline and prices could easily top $3.50 by the summer driving season. The two-year high of oil and gasoline prices should be significant warning signs for the Administration and policy makers in Washington. Unfortunately for U.S. consumers, no one is taking action to alleviate the strain on their pocketbook.

Earlier this week, Saudi Arabia’s oil minister sought to reassure us all that OPEC was ready to pump more oil to compensate for any oil supply decline. Whether or not Saudi production being dumped into the market will alleviate short- term price increases, the issue of continual market fluctuation is still a long-term and serious issue to our nation’s security.

Like all previous decades, the Administration and U.S. policy makers are doing nothing to solve this perpetual issue. In fact, the President and his cabinet are supporting and continuing the same faulty energy policy. At a White House Council on Jobs and Competitiveness meeting, U.S. Treasury Secretary Timothy Geithner noted that there are substantial reserves across world economies, and that this excess capacity would help economies cope with disruptions. President Obama echoed his remarks by saying, “We actually think that weâ•˙ll be able to ride out the Libya situation and it will stabilize.”

Instead of protecting ourselves from economic disaster and increasing energy production, the Administration continues to prohibit access to nearly 99.9% of our nation’s energy reserves. With the continued de facto moratorium in the Gulf of Mexico and federal policies limiting development on most federal lands, our country now has the largest prohibition to natural resource exploration in the world.

The only way to solidify our energy security and break the chains of foreign energy dependency is to expand and increase our domestic oil and gas production. Echoing the words of Diana Furchtgott-Roth, former chief economist at the U.S. Department of Labor, “Every single additional barrel of oil produced in America is one barrel fewer that we need to import — and as we produce more at home, we employ American workers and produce revenues for all Americans.”

By Don Briggs

As crude oil prices hover around $90 a barrel and gasoline at an average of $3.00 per gallon according to AAA, it appears that many analysts are predicting even higher prices for 2011.

Due to growing global demand, analysts from companies such as Morgan Stanley, Goldman Sachs Group Inc., JPMorgan, and Merrill Lynch all see oil prices climbing to $100 in 2011.  As well, other analysts are predicting even higher prices.  Economist Dian L. Chu is predicting crude could hit $110 to $115 a barrel in March of 2011.  In a recent blog post Chu wrote, “At that level, gasoline at the pump could hit $3.70-$3.80 a gallon range.”

On a recent CBS talk show, Former Shell Oil president John Hofmesiter predicts that world oil supplies will tighten and gasoline prices will hit $5.00 in 2012.  In his opinion, these price increases are caused by competition and growth of the emerging economies of China and India.  “We’re right back to where we were in 2007 and 2008, in terms of U.S. demand.  What’s different this time, however, is that Asia’s demand is much, much higher than two years ago,” said Hofmesiter.

World crude oil production has leveled off in the past 3 years in the range of 85 million barrels per day, indicating peak oil has arrived.  In the 1970’s, the U.S. produced 10 million barrels per day.  Currently, the U.S. consumes 20 million barrels a day and produces a mere 7 million.  Instead of producing more oil to meet our demand, the unfortunate scenario is that we’re producing less.

Growing U.S. oil production would have a significant and beneficial impact on oil and gasoline prices in our country.  The big question is, “Why are prices increasing and are we doing enough here at home to thwart these inevitable increases?”  Unfortunately, instead of sustaining our demand through domestic production, policy makers keep 90% of our Outer Continental Shelf resources off limits.  Additionally, drilling in the Gulf of Mexico is shut down and the next five-year federal leasing plan has been postponed until 2017.

Rising prices in an economic recession can be a confusing scenario.  It’s important to understand how this could occur and how the coming price increases are indications of a larger global issue.

Many will suggest that speculators play a part in rising prices, as was the case when oil prices hit a record of $147.  Speculators will always have some degree of price impact in any commodity market.  However, we see a greater issue here at work: oil supply vs. oil demand.

The truth is that oil is finite and rising global demand is unsustainable at current production rates.  Simply put, world supplies of crude production can’t keep up pace with skyrocketing global demand.  While U.S. demand for oil remains flat, demand for oil continues to rise in developing economies such as India and China.  This rising demand, lack of supply, and continued production decline is the root of continued price increases and is driving the global market today.  Peak oil is real and prices will continue to rise as global production continues to decline.  For the sake of our country and our way of life, we must seek policies that increase our access to produce domestic energy and establish sound policies that address the coming energy crisis.

Don Briggs – Louisiana Oil & Gas Association -

This coming Wednesday at the State Mineral Boards monthly meeting, Board members may very possibly be considering proposals by DNR Secretary Scott Angelle, designed to boost the floundering Louisiana Coastal Zone drilling market.  While the inland water rig count has climbed back from an historic low this past July of 5 rigs to the current 14 rigs, inland drilling activity is still 37% below the past 5 year average.

Secretary Angelle has publicly stated, “Oil and gas companies clearly have a choice where they spend their exploration dollars and we want them spent in Louisiana.”  Angelle’s timing could well be on target for several different reasons.

The oil and gas exploration business is a “price sensitive” industry.  Simply put, when the price of oil or natural gas is up, we invest and drill more.  When prices are down, we drill less.  That is why we have witnessed over the years the ups and downs of the industry, the never-ending roller coaster ride.  Today, we are witnessing a little different phenomenon in the industry.

Historically, according to the Energy Information Administration (EIA), from 1990 to 2007 the average price ratio of natural gas to crude oil has been about 8.6 to 1.  For instance, if natural gas prices were at $1 per MCF then oil prices would be at $8.60 per barrel.  Today with oil prices at $86 per barrel and gas prices around $4, the spread is 21 to 1.  Analyst are predicting oil prices to be in the mid to high eighties for the coming year.  However, the EIA recently dropped its outlook for the natural gas prices in 2010, from an average of $5.17 per million BTU down to $4.44.  Natural gas is certainly being sold at a discount.

What does all this mean?

It means oil and gas companies are shifting gears and moving to explore for the good oil fashioned black gold, oil.  Floyd Wilson, Chairman and CEO of Petrohawk Energy noted, “With gas in the $4 range and oil in the $80s, it’s valuable to be able to switch to more oil.” With this in mind, Petrohawk announced this past week that they would cut back on natural gas drilling and double up on oil drilling on acreage it holds in South Texas.

Petrohawk was not alone.  Natural gas giant Chesapeake Energy’s CEO, Aubrey McClendon, told attendees at a recent energy conference, “The economics just compel you to look for oil rather than natural gas right now.”  Another company moving to the oil markets is Houston based EOG resources, with more than 500,000 acres in South Texas’s Eagle Ford Shale formation.

DNR Secretary Scott Angelle’s encouragement to develop in the Coastal Zone of Louisiana is timely and important to the state as well as to the oil and gas industry.  The State of Louisiana is the largest landowner in the state, thus the recipient of not only severance taxes on the oil and natural gas production but also reaps the benefits of significant royalty interest payments.  With the states current budgetary constraints, any boost to the general fund will be helpful.

For the years to come, 2009 will be a year none of us will easily forget; certainly not in the near future.  When you say the “pendulum has swung the other way”, it definitely has in the oil and natural gas industry.  As well, we cannot talk about the state of the oil and gas industry without talking politics.  The political pendulum has swung the other way and is playing a role in our industry’s direction.

In the past recent weeks, Lafayette was recognized as the eighth-best city in the country to find a job, according to employment services firm Manpower’s latest United States Employment Outlook Survey.  Also the Greater Lafayette Chamber and executive director Rob Guidry were awarded the No.1 Chamber and director of the year in Louisiana.  Recognitions of such is rewarding to our community and even more so because it is happening at a time when our country is in a sever recession and Louisiana’s oil and gas industry has experienced historical swings in exploration and development.

In 2008 the price of a barrel of oil broke all records hitting a high of $147 per barrel and natural gas prices soared to a record high of $13/mcf.  In 2009, the pendulum swung the other way at a breakneck speed.  In the matter of a few months oil prices crashed from a record high to $35 per barrel – a 76% decline.  Natural gas prices followed suit, falling to a low of $2.41/mcf – an 81% decline.

With the fall of oil and natural gas prices, the decline in exploration and drilling activity was soon to follow.  Oil and gas companies slashed exploration and development budgets, watching in dismay the free fall of oil and natural gas prices. For many in Louisiana and especially in oil and gas communities of Lafayette, Houma, Morgan City, and New Iberia, it was déjà vu of the mid eighties.

The US rig count peaked at 2031 active rigs in 2008 and crashed almost over night to a low of 899 rigs in January of 2009, a 56% decline. As a side note, the peak rig count in 1981 was 4,500 active rigs drilling in the US.  As you can see from the graph comparing Louisiana rig activity to other major producing states, Louisiana has faired well in comparing decline rates from 2008 to 2009.

The Texas rig count has declined by 60%, Oklahoma by 64% and Louisiana by 27%.  Only Pennsylvania has a growth of 96%, which is due to the growth in the Marcellus Shale.  However, in doing an analysis of Louisiana rig count throughout the state, the picture is bleaker than the overall decline of 27% which it depicts.

In reality, if it were not for the current record high of 99 rigs drilling in North Louisiana, Louisiana’s overall rig count would be near 50 rigs instead of 147.  We can count our blessing for the Haynesville Shale.

1992 was the worst year recorded for drilling activity in the state of Louisiana having been caused by the downturn in the Asian economy.  Unfortunately, the current rig crisis we find ourselves in today has surpassed the 1992 crash.  However, it appears the bottom has been reached and a slight growth is taking place.

In recent months the rig count in South Louisiana hit unprecedented record lows, shattering the 1992 lows.  Twenty-five rigs drilling in the Gulf of Mexico is difficult to believe.  Going back in recorded history, it was only in the 1940’s the rig count in the Gulf was in the twenties and that was because drilling in the Gulf was just getting started.  In 2001, the average rig count in the Gulf of Mexico was 148 rigs. The Inland Water rig count recently bottomed out at 5 rigs and the South Louisiana Land rig count bottomed at 11 rigs.

Today, nearly 70% of the rigs drilling in the US are drilling for natural gas. A few decades ago; the opposite would have been true.  There is a definite migration of the oil and gas industry moving from the conventional drilling prospect to the non-conventional natural gas resource plays.  Oil is not out, but gas is the trend.

In the mid eighties, there was an effort to push the consumption of natural gas.  However, due to the technology at the time, there was a mere nine years of supply.  That has all changed. Today there is a conservative 150-year supply of natural gas in the US.  Natural gas is the fuel of the future and the State of Louisiana has vast reserves and will be a leader in the development of those resources in Louisiana and the nation.

There are currently seven major natural gas plays being explored and developed totaling nearly 184 thousand square miles.  This is not limited to other potential resource plays being evaluated today in Arkansas, and Mississippi.  The potential is unlimited for the development of natural gas resource plays.

Louisiana is a vital ingredient in the makeup of our country’s energy security and future.  Not only do we have the blessing of vast oil and natural gas resources, we have the infrastructure, we have the people, the technology, and the know how to develop those resources.  The reason Lafayette received a top rating in the entire country for places to find a job is because we are a city of “innovators”.

Louisiana is a large consumer of natural gas.  It is because of our vast natural gas reserves that we have the petro chemical industry in Louisiana, which employees tens of thousands of Louisiana citizens.  Natural gas is a feedstock for the chemical industry and vital for it’s existence.

The use of natural gas to power the engines of our transportation system will be the answer to ending our ever-growing dependence on oil from countries that hate us.  It makes no sense for the US to continue on a path that undermines our entire economic structure.  It is not about being energy independent, it is about being energy secure.

The political pendulum has swung to the far left in regards to our President’s opinion of the oil and natural gas industry.  At no time in my life have I seen the resources being spent by our industry to convince Congress of the importance of the domestic oil and gas industry to our country’s energy security.  President Obama has made it very clear he does not support the industry or desires to understand it.

At the time of writing this column, the debate on a cap-and-trade system to regulate emissions, and stripping the incentives needed by the industry to explore for oil and gas was going on in Congress.  Hopefully, the pendulum is now on it’s swing back to reality, and our industry can do what we do best, and that is to develop the oil and natural gas resources of our country providing energy security for the US of A.

Louisiana Oil & Gas Association – By: Don Briggs -

The stage is set for the transformation from an oil supplied transportation system to a natural gas supplied transportation system.  A year ago T. Boone Pickens went on the world stage using his own money campaigning for the “Pickens Plan”.  Part of the Pickens Plan was the use of CNG (compressed natural gas) powered vehicles to wean the U.S. off the ever-growing imports of foreign oil, which has grown to 70% of U.S. consumption at a cost of $400 billion annually.

For decades every U.S. President has been warned of the national security risk of growing oil imports, all the way back to President Truman when imports were at 20%.   EIA (Energy Information Administration) projects continued growth in U.S. oil demand and imports.  In another ten years we could easily be importing 75% of our demand at an even greater cost.  However, this does not have to happen.

The U.S. has an abundance of natural gas. Last month the Potential Gas Committee, a natural gas think tank, released a report estimating gas resources in the U.S. have surged by 35%, due to new technologies that have unlocked domestic supplies of the clean burning fuel.  The Potential Gas Committee estimated gas reserves rose to 2.07 quadrillion cubic feet in 2008.  The report confirms the Department of Energy estimates of a 100-year supply of natural gas.

It only makes sense that NATURAL GAS is the fuel of the future, or should I say the immediate future.

•    98% of the natural gas used in the United States is produced in North America
•    The cost of CNG currently averages up to 40% less than an equivalent gallon of gasoline
•    American natural gas producers control ALL of our needed reserves for natural gas compared to the U.S. control of 4% of the world oil reserves
•    CNG is by far the environmental answer for America; natural gas vehicles show an average reduction in ozone-forming emissions of 80 percent compared to gasoline vehicles.

The transformation from gasoline-powered vehicles to natural gas won’t take place overnight.  There are over 9.5 million natural gas vehicles worldwide.  Argentina, Brazil, Iran, Pakistan, lead the world in natural gas vehicles with one million or more vehicles.  The U.S. has a mere 100 thousand. The kicker is INFRASTRUCTURE, where do you fill up and how often.

In the 1989 movie Field of Dreams, the catch phrase was, “If you build it, they will come.”  Fueling stations around the U.S. will have to be built in the years to come for consumers to feel comfortable in purchasing CNG vehicles or purchasing conversion kits for their vehicles. In the meantime the conversion of FLEET vehicles will be a big part of the instant growth in CNG Vehicles.  AT&T recently announced converting nearly 8,000 vehicles to CNG in the next five years.  Also many cities plan to convert their fleet vehicles and public transportation systems.

Louisiana is doing its part, not only as a major producer of natural gas but providing incentives for consumers and industry to convert to CNG vehicles.  This past week, Governor Jindal signed HB 110.  HB 110 increases the existing income tax credit from 20% t0 50% for purchase of qualified clean burning motor vehicle fuel property; includes equipment installed on a motor vehicle; includes property directly related to the delivery of an alternative fuel.  The legislation was authored by Representative Jane Smith and Senator Nick Gautreaux and strongly supported by industries throughout the state. CNG fueling stations will soon become more readily available as will CNG vehicles for purchase.

By Don G. Briggs, President – LOGA (Louisiana Oil & Gas Association)

What a difference a few months can make. In July of 2008 oil prices closed at a record high of $145 a barrel, and all was looking rosy for the oil and gas industry. Predictions were already being made for higher prices in 2009: Goldman Sachs predicted oil prices to climb to $200 a barrel just five months ago. Alexei Miller, the chief executive of Gazprom, the Russian gas monopoly and the world’s largest energy company, predicted prices to climb to $250 a barrel in 2009. Miller and Goldman were somewhat on the high end but not alone, as there were many analysts and big corporations predicting prices to be $150 to $200 a barrel.

This past Friday oil closed at $38.01 per barrel, a 74% crash in six months. “Who would have ever thunk it?” U.S. crude oil stocks are 39.5 million barrels above last year’s level, and well above 5-year levels. The U.S. Energy Information Administration (EIA), reports 339 million barrels of crude are in commercial stocks, which is a 16% percent increase over this time last year and above the U.S. average.

We are definitely afloat in oil. Onshore storage tanks are near full capacity and finding storage space is difficult. Oil players and traders are going to the high sea and storing oil in supertankers. One of the world’s largest crude supertanker fleets, Frontline LTD, estimates there is close to 80 million barrels of oil floating on the high seas looking for a place and time to unload. The world consumes 84 million barrels per day.

There is also another reason for the high seas supertanker storage of crude. The oil markets have gone into a condition called “contango”, which is when the current price of crude is less than contracts for future delivery of oil in months to come. Simply put, oil purchased at $35 a barrel could be sold forward in a September contract for $45 a barrel, a $10 spread over the current price. The storage cost at sea of a 2 million barrel tanker is approximately $60,000 a day. The monthly cost to store a barrel of crude in round numbers is $1 per barrel per month and $6 for six months. Subtract the $6 storage cost from $10 spread would $4 profit for the trader.

There’s certainly risk to the “contango” scenario. Predictions for oil prices are all over the board. On February 3, Goldman Sachs said, “We predict oil will tumble to a low of $25 a barrel in the second quarter of this year from the current level of around $40, and will average $35 a barrel over the course of 2009”, a long way from the $200 predicted a few months ago. The following are additional predictions for 2009 crude prices;

• Bloomberg Consensus: Oil futures may rebound from their worst year to average $60 a barrel.
• Deutsche Ban
• Blog predicts $60 to $70 a barrel by year’s end.
• The Energy Information Administration projects crude oil will trade at an average of $51 a barrel in 2009.
• Moody’s Investors Service says crude will average $50 a barrel in 2009.
• OPEC is pushing for an average of $75/bbl and are prepared to make deeper production cuts to ensure this price.

• k predicts an average of $47.50 a barrel for all of 2009
• Oil Traders There you have it, kind of like a roulette table, what number do you bet on or do you just stand back and watch. Who knows? Looking back at this past year, anything can happen. What is your prediction

By Don G. Briggs, President – LOGA (Louisiana Oil & Gas Association)
Where do we go from here?  Oil prices settled year-end at $44.60 a barrel, down nearly 50% from the beginning of 2008, and down 70% from the July 2008 record high of $147 a barrel. At one point in December, prices plummeted to $33.87 a barrel, the lowest since May of 2004. Some analysts forecast 2009 oil prices to average $40 plus a barrel where others forecast prices in the high $60 – $70s a barrel.  “Sometimes the market is overshooting upwards and downwards, and this time this is definitely happening downwards,” said IEA’s executive director.

Addision Armstrong, director of market research for Tradition Energy says the oil price slide is about done, “I expect crude prices to hold after the February contract expires on January 20th.” “The key factor for oil prices in ’09 will be the depth and length of the global recession,” says Armstrong.

In reality, predicting oil prices in 2009 is a guess on the global economy and geopolitical changes.  Adam Sieminski, chief energy economist of Deutsche Bank, recently said that the demand for oil in 2009 would drop more than any other time in the last quarter of a century due to the weak economy.

Just how deep will the recession cut into the oil exporting countries’ economies? Exporting countries such as Mexico, Russia, Iran, and Venezuela are heavily dependent on oil revenues to fund their economies and have based their budgets on crude prices above $70 a barrel.  Even with the higher oil prices, Mexico’s economy was in a tailspin because their largest oil field, Cantarell’s production output fell 33%, more than double their estimates.  Lower oil prices will have serious ramifications to our southern neighbor.

Will the cuts in production proposed by OPEC bring balance to the supply and demand equation?  Currently world crude production is greater than demand and is causing the world to be awash with oil.  OPEC’s production cuts have yet to affect prices, mainly because the global recession is reducing demand faster than supply cuts can be made.

Low oil prices coupled with the lack of investment capital and credit, will cause oil and gas projects around the world to be scrapped or tabled in 2009.  The independent oil and gas companies who depend on capital and credit to finance their projects,  are slashing their 2009 budgets. Meanwhile, the majors or integrated companies who are sitting on plenty of cash, will continue with their 2009 projects.

And now for the good news; the lack of investment into exploration will cause a crude supply shortage and that could be as early as mid 2010. Prices will soar.  We often take for granted that oil is an unlimited resource like the air we breathe, but it’s not.  The world oil supply is fixed, embedded in our planet and is no longer being formed.

IEA (International Energy Agency) stated in its annual report that without extra investment to raise production, the natural annual global crude oil depletion rate is 9.1%.   The report warned the world needed to make, “a significant increase in future investments just to maintain the current level of production”.  IEA chief Nobuo Tanaka said,   “The price of oil has fallen too far in response to a decline in world demand for fuel.”

It is difficult for anyone to predict the severity of the global recession.  As for the price of crude oil, we can predict that without investment into exploration, a crude supply shock will occur and prices will soar.  

By Don G. Briggs, President – LOGA (Louisiana Oil & Gas Association)

At what price does a barrel of oil or a gallon of gasoline have to cost before our Congress develops an energy plan that will work? I must say that I am continually amazed at the “do nothing” energy policies coming out of Washington; both Republicans and Remocrats pointing their fingers blaming the other for high gasoline prices and neither party seemingly having a clue on what to do. Keep these facts in mind while reading the rest of this column; the U.S. has a population of 290 million people, which is 2.5% of the worlds total population, consumes 25% of the worlds daily oil production, has 2.5% of the worlds known oil reserves and has 85% of it’s natural resources off limits for exploration.

This past week oil prices again climbed to a record high of over $127 per barrel and the average price of a gallon of gasoline hovered near $4 dollars; what did the Senate Republicans and Democrats do?, voted to call a halt to the diversion of 70,000 barrels of oil per day into the SPR (Strategic Petroleum Reserve), their rationale being it makes little sense to be putting oil into the ground at these prices. The SPR was originally created to provide relief when oil and gasoline supply shortages caused economic hardships and a threat to national security.

“I am pleased the Senate has taken a common-sense step toward easing the burden Americans are feeling at the gas pump by making more oil available in the marketplace,” said Senator Feingold. “This move is not a cure-all but it should provide some relief without jeopardizing our oil reserves.”

In reality, zero relief will come from a token 70,000 barrels per day; the move was more of a political ploy than anything. In fact, shortly after the Senate made the announcement, Iran announced they were going to reduce production and the price of oil climbed above $127.

Also this week the Senate Democrats and a handful of Republicans defeated a Republican drilling proposal that would have allowed the governors of the nation’s 22 coastal states, including Alaska, to petition the federal government for permission to drill on the Outer Continental Shelf (OCS), which is the slope beyond the beach.

During the one hour debate, Senator Kay Bailey Hutchison, R-Texas, said the OCS contains 115 billion barrels of oil, “The best thing we could do for America is we can say we are going to drill in our own areas that we control.” Senator Richard Durbin, D-Ill argued, “We cannot drill our way out of this issue. We cannot drill our way to lower prices.”

Missing from the Republicans drilling proposal was lifting the drilling moratorium in the eastern Gulf of Mexico, which the Democrats argued, “The Gulf of Mexico is the first place we should be looking to for expanded production, not the one place we leave off the list.”

As the sun sets on this week, crude rose to a record $127.82 per barrel. The Senate voted to suspend putting oil into the SPR, the Senate defeated a proposal to open drilling on the east and west coast, and defeated a proposal to open drilling in Alaska. On Friday, President Bush, for the third time this year asked Saudi Arabia to put more oil into the market, only to be told, “Supply and demand are in balance”, said Saudi Oil Minister Ali al-Naimi.

I am back to my original question, at what price does a barrel of oil or a gallon of gasoline has to cost before our Congress develops an energy plan that will work?