Rise in U.S. Energy Industry Predicted

Article excerpt

All the forecasts on the energy industry vis-a-vis the Middle East oil crisis will have a new dimension this time next week.

The United Nations deadline for Iraq to withdraw from Kuwait is Tuesday.

Nearly all the energy sages look at three scenarios ranging from a quick resolution to a protracted stalemate to a shooting war with timeframes ranging from six months to more than two years. Time is nearly up for the six-month scenario, though.

Regardless of the outcome of the Middle East crisis that began Aug. 2, there are other factors in the United States that are drastically affecting the energy industry, too. Environmental regulations top the list, and the general economic climate will be a major force.

Given any scenario of Mideast events, all aspects of the U.S. energy industry - petroleum demand and supply, capital expenditures, drilling indicators, natural gas demand and supply, coal demand and nuclear demand to a lesser degree - are predicted to rise through 1995 by one forecast.

That forecast is the "Oil Industry Outlook" for 1991-1995 written by Robert J. Beck, economics editor for the Oil & Gas Journal. The annual report was prepared in the early days following eruption of tensions in the Middle East and was published in November. It was released late last week.

"The worldwide and United States oil and gas industries have been shaped and reshaped by changing political and economic events. This is particularly true this year," Beck wrote in the introduction.

"Because of the current crisis in the Middle East, the industry is almost being forced to predict future political events."

The report, he said, is an attempt to help the industry evaluate historical and current events plus various possible effects the Middle East crisis will have on the future business climate in order to proceed most successfully.

"In order to operate profitably in the future, it is essential that companies develop a strategy for adapting to the changes occurring in the industry and a strategy for operating under the new conditions in the industry. The strategy that worked in the 1970s and 1980s will not necessarily work in the 1990s," Beck said.

"The future may be filled with a great deal of uncertainty, but it is also filled with exciting opportunities."

Beck studied three scenarios:

- Scenario I - an extended embargo of oil from Iraq and Kuwait for six to 18 months.

- Scenario II - a protracted embargo of 18-30 months.

- Scenario III - a short embargo of less than six months.

Once the conflict is resolved, at any point, he assumes Iraqi and Kuwaiti oil production is resumed at previous levels.

Oil prices are generally projected to rise during the period.

Under the first scenario, Beck predicts oil prices would rise about 12.6 percent over the five-year period, cresting in 1991 before slumping in 1992 and beginning a steady climb through 1995. Higher oil prices would be sustained through 1992 under the second scenario, but fall lower than under the first scenario and average a 9.6 percent increase through the period. Oil prices would dip slightly in 1991 but gradually climb 18.6 percent over the five years under the final scenario.

Economic expansion is projected throughout the forecast period.

The degree of economic growth will impact energy demand, Beck noted, but energy costs will have the greatest effect on both economic growth and demand. All those factors are interrelated and interdependent.

"What should be kept in mind is that demand for energy and petroleum products is very dependent upon the level of economic activity and will tend to follow the trends in economic growth," he said.

"Two of the major problems in the U.S. are the budget deficit and huge negative international trade balance. …