?Typically, at the end of the first quarter of each year, oil and gas producers and their midstream service providers are fairly cognizant of their plans for the rest of the year. Not so this year. Upstream and midstream operators find themselves faced with more questions than answers.
Where are oil and gas prices headed? What geographical areas will be the most economic? Which new proposed regulations will be enacted? And what new technologies will support safer and more efficient growth?
While definitive answers continue to be hard to pin down, these topics and more were at the forefront of discussions at Hart Energy’s recent Marcellus Midstream Conference and Exhibition, held in Pittsburgh.
U.S. gas prices will continue to average between $4 and $5 per thousand cubic feet in the near term, according to most of the 1,400-plus attendees and speakers. While producers would like to see prices climb, many plays are still economic at that range. Also, the current lack of price volatility may entice more power generators to switch from coal to gas.
In fact, coal providers are accepting shorter-term supply contracts (historically they have demanded 10-year terms), according to speaker Randy Albert, chief operating officer for Consol Energy, so gas feedstock has an opportunity to gain market share. Meanwhile, the message is getting through to consumers that gas is cleaner than coal, which may also push more demand.
According to the speakers, the hottest play is the Marcellus, due to its proximity to high-demand Northeast markets. Even as the play ramps up to produce some 5 billion cubic feet of gas per day in the near term, prices will likely stay favorable, because Marcellus gas will likely displace supply from the Gulf Coast, Rocky Mountains and Canada.
Even the downstream energy sector has a part to play, according to Gary Evans, chairman, president and chief executive for Magnum Hunter Resources Corp. “If I were running a petrochemical company today, I’d be looking at this part of the country, maybe locating somewhere along the Ohio River,” he advised.
Yet, getting new projects permitted is a problem. Ben Davis, partner with Energy Spectrum Capital, cited a Pennsylvania-New York pipeline project proposed by one of the capital provider’s portfolio companies.
“This was not a quick task to get this permitted,” he said. Regulatory issues in New York were extremely complex and added significant time and cost to the undertaking.
On the upside, new research and development projects by the Pipeline Research Council International (PRCI) should smooth the way for implementation of new pipeline corrosion-prevention, design, materials and integrity systems.
“These are the backbones of pipeline operations,” said Mark Piazza, senior program manager for PRCI. He discussed aerial surveillance of rights-of-way and more affordable semi-smart pigging technologies. Yet, he noted that third-party damage is still the leading cause of pipeline incidents, despite multiple community programs to prevent such occurrences.
With all the moving cogs that must be meshed into a single gear before new energy plays can be developed, a philosophy of cooperation is key, said the speakers—especially with regard to strategies and trust.
John Pinkerton and Frank Semple, chairman and chief executives for Range Resources and MarkWest, respectively, were the perfect example of cross-company cooperation as they shared an informal fireside chat, and a few laughs, with attendees. The companies are well known for coordinating their drilling, production, gathering and processing efforts.
Wrapping up the chat, they coined a phrase that is sure to be heard around water coolers for the rest of the year. Stressing that natural gas is the natural solution to the need for dependable and domestic clean energy for the next several generations, Semple encouraged attendees to continue to focus on “red, white and blue Btus.”
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