Skip to Main Content
December 29, 2014
Principal Paul Carpenter Featured in Petroleum News on the Outlook of Alaska’s Oil and Gas Markets

Brattle principal Paul Carpenter has been featured in an article from the December 21, 2014 issue of Petroleum News that discusses the long-term pricing outlook of Alaska’s oil and gas markets. The focus of the article is on a presentation given by Dr. Carpenter during the Law Seminar International’s (LSI) Energy Markets and Regulation in Alaska conference, where he cautioned about the importance of taking a long-term view of oil and gas markets and suggested that some of the current market dynamics could end up working in the state’s favor.

The article, “Taking a long-term view on pricing,” examines the impact of the current plunge in prices on Alaska’s oil and gas future, and the potential positive impacts that can come out of the current environment of the state’s oil and gas industry. With oil prices dropping in a market share war between Saudi Arabian crude and U.S. shale oil, some high-cost production may be forced out of the market. Additionally, with liquids production in shale plays currently subsidizing North American gas production, low oil prices could have the converse effect of pushing gas prices up. Dr. Carpenter points out in his presentation that if oil prices rebound in the future, it could enable Alaska North Slope oil production to increase and could favor Alaska liquefied natural gas exports.

“We can get awfully wrapped up in assessing what we think the effect of short-term events in the market are, particularly in commodity markets like this, and miss the longer-term trends,” Dr. Carpenter notes. “We have to understand what’s going on today but keep a sober view of where it may all shake out.”

Dr. Carpenter’s presentation discusses that while the potential availability of expensive oil production coupled with the dampening impact of high oil prices on consumer demand places an upper ceiling on the price of oil, instabilities within the Organization of the Petroleum Exporting Countries (the cartel that tries to control the world oil market) can lead to oil price volatility. The current marginal cost of production from Saudi oil wells, around $10 to $20 per barrel, would presumably set a threshold below which current production would no longer prove viable.

Dr. Carpenter explains that viable investments in new wells to increase production would require a higher price level in the range of $50 to $60 for continued growth of U.S. shale oil production. With oil companies hedging oil prices a few years into the future as part of their risk management strategies, low oil prices may not start having a significant impact until around 2016, he explains.

Dr. Carpenter's LSI presentation can be viewed using the link below.