Energy industry recovery will be ‘slow and bumpy’
In Congress there are proposed bills concerning hydraulic fracturing, air emissions, climate change, low-carbon fuel standards, federal land access and more, in addition to lesser-known concerns at the federal level about over-the-counter derivatives and incremental drilling cost taxes.
“In my 30-plus years that I’ve been associated with this (industry), I’ve never seen such a collection of such impactful headwinds from a political, legislative or regulatory perspective than what we’ve seen today,” said Don McClure, vice president of government and stakeholder relations and legal. During a Nov. 18 speech in downtown Fort Worth, he described the “collective weight” of the impact that could result from these political headwinds as “extreme.”
When asked about his stance on the Kerry-Boxer bill, the U.S. Senate’s answer to the House of Representatives’ Waxman-Markey bill, McClure deferred any endorsement or denouncement (similar to America’s Natural Gas Alliance’s stance), instead saying EnCana and other gas producers are eager to work with the Senators to fill placeholders with meaningful natural gas-friendly legislation.
Denver-based EnCana Oil & Gas (USA), itself a subsidiary of Calgary, Alberta, Canada-based EnCana Corp., was the No. 5 producer in the Barnett Shale during 2008. The parent company, EnCana Corp., is North America’s largest gas producer.
In the next few weeks, EnCana is expected to complete its previously announced split into two companies: EnCana, the gas company, and Cenovus Energy, the oil producer. (The split originally had been announced in spring 2008, but the company opted to suspend the plans months later due to “too much uncertainty” in markets.)
The gas industry’s recovery will be “slow and bumpy” due to a number of factors, primarily the much-deflated price of natural gas. Gas reached toward $14 per million British thermal units in summer 2008, but now is closer to $4.25 per MMBtu.
Demand for gas is weak, too.
“We’ve got all-time storage highs,” said McClure, adding, “I don’t know where the upper end really is. People say it’s at 3.8 (trillion cubic feet) but we’re already there. People also say that technically it could get up to 4.1.”
As of Nov. 6, working gas storage was 3,813 billion cubic feet, 10 percent higher than the same time last year and 12 percent higher than the five-year average of 3,404 Bcf, according to estimates from the Energy Information Administration, a division of the U.S. Department of Energy.
Furthermore, the Barnett Shale rig count, which peaked in September 2008 at 188 rigs, now is down to about 70 rigs.
“The activity has dramatically dropped relative to the pricing we’ve had,” McClure said.
Despite the reduction in activity, McClure stressed that unconventional gas is the new conventional, and the potential for shale gas is worldwide. The North American abundance of natural gas gives the U.S. and Canadian economies options for independence from “off-continent oil.”
“Think back to 2002 … people thought [natural gas reserves were] peaking. Now we have over 100 years of supply,” he said. “That is profound and it is material.”
