Fracing saved U.S. industry, forum hears

U.S. natural gas production, the quantity of natural gas resources and the advanced technologies of the industry were the focus of presentations delivered by three experts in the oil and gas industry at the BoyarMiller Breakfast Forum titled “Perspectives on the Energy Industry.”

There are a number of far-reaching benefits to growth in U.S. natural gas production, as cited by panelists David Pursell, Managing Director of Tudor, Pickering, Holt & Co.; Thomas Bates, board member of several oil and gas companies and adjunct profession of energy macroeconomics at Texas Christian University; and Paul DeWeese, CEO of Southwest Oilfield Products.

“First and foremost, hydraulic fracturing saved the U.S. industrial sector,” said Pursell of Tudor, Pickering, Holt & Co. “Without fracturing, we would not have the natural gas that benefits a number of industries. Remember that cheap natural gas makes electricity prices low - and that electricity powers so many industries like steel, paper and manufacturing.”

Pursell pointed out that the U.S. is experiencing sustainable onshore production growth of natural gas at a time when gas-directed rig counts are declining. “It’s about the Marcellus, Utica and Eagle Ford regions being very prolific and productive for significant growth through the end of the decade. LNG exports will start to come into the equation by 2017, and we think that by 2020 there will be over three Bcf a day of LNG exports.”

According to Pursell, the challenge is crude oil because of a tight global market. Outside the U.S. there is no oil production growth, so Pursell labeled what is happening in the U.S. as “miraculous.”

“It is unbelievable for anybody to think five years ago that the U.S. would be the only place in the non-OPEC world, particularly onshore, where oil production is growing,” said Pursell. “And that is what’s happening. We’ve gone from three MMbopd to over six MMbopd of onshore production; all of that growth is light sweet crude. The challenge is: what are we going to do with all this crude? We can’t export it. So we’re going to refine it but we don’t have the ability to refine all of it. So that’s going to create some pricing pressure on light sweet crude.”

Pursell summed his presentation stating that the winners of this situation are the refiners, and that means more growth for the Gulf Coast area.

“The economic impact of the U.S. shale plays is anywhere from $500 to $700 billion annually, depending on which economist you ask,” said Bates. “The last estimate I saw was that shale production contributed 3.5% to the U.S. gross domestic product. Without it, there would be negative growth in the United States.”

In addition to the benefit of low-priced natural gas to the electric power market, there is a $90 billion benefit to the residential, commercial and industrial markets. Bates said that MIT and the National Petroleum Council published a study in September 2011 that suggests the natural gas resource in the U.S. may provide a 100- to 150-year supply of natural gas in this country if it can be converted to reserves.

“So all of this gas is available to us at a cost that is 75% below the cost of imported crude oil that we deliver to our doorstep every day,” said Bates. “The International Energy Agency in its 2013 World Energy Outlook Report states that we have a structural, long-term competitive advantage in gas and electricity. In 2035, gas and electricity in the U.S. will cost half of what they cost in Europe or Asia. There is a long-term, structural competitive advantage that accrues to our economy because of natural gas. Even better news: it’s environmentally friendly!”

Bates gave his perspectives on oil production, which peaked in 1970 and then declined until 2008 when the shale developments transformed the industry. “Total oil production in this country went from five MMbopd to eight MMbopd at the end of last year. That is a 60% increase in only six years,” said Bates.

“Even better, our import bill keeps going down because of increased domestic production and decreased consumption. Oil prices were higher so we consumed less. Overall, imports went from 13 MMbopd to 7 MMbopd over a five or six year period of time,” said Bates.     

Bates addressed the demand for an increased workforce in this thriving industry, stating estimates that the oil and gas business is going to create almost four million new jobs, more than any other industry.

DeWeese described a renaissance in technology to sustain the needs of the oil and gas industry and said that companies that don’t keep up with the technology curve will struggle. “There is a real shift in drilling technology because there are fewer rigs, drilling more feet and discovering more oil and gas,” said DeWeese. “Drilling contractors are doing a great job with advances in pad drilling, walking rigs and the ability to drill faster and be more efficient.”

While DeWeese cited some positive trends in offshore drilling activity, he is cautious about whether it will continue because the economics of oil and gas shale are more favorable.

From a manufacturer’s perspective, DeWeese added that competition from U.S.-based companies manufacturing products in China puts pressure on his company, and others, to stay competitive.

“Just six years ago it was more cumbersome to get Chinese-made products on rigs or well-service equipment into Louisiana or Texas. That has changed and there is greater acceptance of those products from China and other low-cost countries like India and Romania at a time when U.S. overhead costs are increasing for materials, labor, healthcare and more,” said DeWeese.

He said positive market trends include strong activity for North American drilling contractors, and increased activity in the Middle East and Asia that will continue in the near term. “The offshore market is strong right now and we expect that will decrease over time,” said DeWeese.

Additional trends to watch, according to DeWeese, include the oversupply situation for U.S. fracturing which is resulting in increased pricing pressure and the changes in Mexico with energy reform that will allow investors from outside the country to partner with PEMEX. Also, he said U.S. manufacturers could be negatively impacted by the struggles in Venezuela, Argentina, North Africa and Russia.

The biggest challenge for industry is a lot closer to home, said DeWeese. He reinforced earlier themes about the need for talent in the industry. “The availability of people is a real struggle. So many people are retiring and we are not seeing the influx of younger workers. Every company has open positions right now and it is a big challenge for us.”

03/18/2014

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