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October 30, 2006 01:00 AM

Oil prices remain low

Frank Esposito
Senior Staff Reporter
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    Recent drops in crude oil prices should continue in 2007 and 2008, with the market settling in a range of between $40 and $45 per barrel.

    That's the outlook of Paul Ruwe, a principal with Muse Stancil & Co. energy consulting firm in Houston. Ruwe spoke at Flexpo 2006, Sept. 20-22 in Galveston.

    Ruwe said prices should drop to that level as excess production capacity increases. But he cautioned that his prediction applies to ``a normal market.''

    ``There's still a lot of political unrest, and if there are any surprises, we can see short-term spikes,'' Ruwe explained.

    As of Oct. 18, crude oil futures for November were $57.50 per barrel. Prices had peaked at almost $80 per barrel earlier this year.

    Ruwe also anticipates natural gas prices to settle into a range of around $3.50 per million Btu as new production comes on-line and supplies of liquefied natural gas become available. Natural gas futures for November stood at $6.80 on Oct. 18.

    ``Natural gas prices in the U.S. are out of line because of delivery issues,'' he said. ``That will be fixed in a couple of years by LNG.''

    ``Natural gas resources are growing more quickly than oil resources. There's stranded gas in parts of the world where it can't be used. And LNG has come of age in the Caribbean, North Africa and Indonesia because of lower transportation costs and lower-cost production methods.''

    Liquefied natural gas will supply U.S. growth in natural gas demand in the near future, and the U.S. also will get more production from Alaska, Ruwe added.

    Also, petrochemical processors are able to use a variety of raw materials. ``Feedstock flexibility is going to be your best friend,'' he said. ``The ability to switch between feedstocks will give you a competitive edge.''

    And although lower oil and natural gas prices will be welcomed by U.S. consumers, the region's overall feedstock picture isn't likely to change much.

    ``We don't see large grass-roots type of investment in the U.S.,'' Ruwe added. ``It's difficult to permit new facilities. The U.S. also has lost its feedstock advantage while its growth rates have lowered.''

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