by Matthew R. Simmons
Chairman and CEO
Simmons & Company International

As the summer of 2003 dawned on the oil and gas industry, oil prices hovered at the edge of $30, despite endless months of speculative shorts working hard to bring prices down to the levels that in many quarters were considered "normal" only a year ago.

The so-called "war premium," which many assumed kept oil prices within the $27-29 range a year ago, has now evaporated, yet oil prices are higher than they were when the war premium concept was first used. Natural gas prices have recently exploded to levels most gas observers would not have dreamed possible even a year ago, and the rise came during the spring shoulder month when gas prices are traditionally at their lowest.

Is this merely another example of how cyclical the oil and gas industry always is? Are these high prices merely another brief spike, soon to be followed by another collapse, before the system finally settles back to "normal" prices, whatever the term normal even means? Or is something fundamentally different under way, ushering in a new era for the oil and gas industry as profound as the oil era that began only 30 years ago, when oil prices finally broke through the $1.50 to $3.00 barrier that had lasted decades?

Industry sea-change events occur only every few decades. But they do occur. The more classic the change, the less it is appreciated until seen from a distance, with the benefit of seeing the landscape through the "rearview mirror." For instance, when oil prices suddenly tripled in the fall of 1973, it took years before the best industry experts began to appreciate that $3 oil prices had become history.

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