MORE NATURAL GAS HEADING OUT OF THE COUNTRY
Supply increases to check growth in cost of gasoline, home heating
In the last year, the U.S. has become a net exporter of natural gas. Because of higher exports, demand is sharply up.
Foreign buyers are in a bidding war with U.S. consumers for the nation’s oil and gas, and that could push up gasoline prices at the pump and home heating bills next year.
But a combination of forces, including more production, could help keep future price increases in check, industry experts predicted Tuesday in Denver.
The country’s once-glutted natural gas market, for example, is coming into balance as more supply heads to Mexico and overseas. Over the past 12 months, the U.S., long an importer of natural gas, became a net exporter.
“It is a real thing that consumers need to be concerned about,” Jack Weixel, a vice president with Point Logic Energy, told a Denver gathering of clients of Bernstein Private Wealth Management on Tuesday.
Producers, responding to higher prices and increased pipeline capacity, have boosted output by 6.2 billion cubic feet a day, although exports have pushed up demand even more, by around 7.3 billion cubic feet a day, Weixel said.
Much of the increased gas production is coming out of the Marcellus Basin in Pennsylvania and Ohio, leaving Colorado’s Western Slope less able to benefit.
A proposed gas export terminal in Oregon never got off the ground, and California, a big market for Colorado producers, is increasingly eschewing natural gas in favor of renewable energy sources.
When it comes to oil, a discount of $5.72 a barrel in favor of U.S. crude versus oil from other countries has driven both a surge in exports and a revival in domestic production. West Texas intermediate crude traded at $57.62 a barrel Tuesday.
U.S. oil production reached 9.2 million barrels a day in September and is likely to get to 10.2 million barrels a day, Weixel said.
But as with natural gas, that production surge is coming almost entirely from one concentrated place, the Permian Basin in west Texas.
Secondary basins like the Denver-Julesburg in Weld County aren’t seeing anywhere near the surge in activity and production that west Texas is seeing, said Petter Stensland, a chief investment officer with the Energy Opportunities Fund at Bernstein.
“Enough rigs are available to go, but not the capital, and there is lack of labor,” Stensland said. Banks, burned in the recent downturn, have pulled back, and private equity firms are focused mostly on large public firms.
Stensland, however, remains skeptical about the Permian Basin. Wells in that region tend to see a big drop in production after the first year, and most can’t generate enough cash flow to cover their costs without borrowing. And the surge of activity in a single region is pushing up service costs.
But Justin Carlson, managing director of research at East Daley Capital, said increased demand and the higher prices that follow will bring more resources into play.
“If demand is there, I believe capital will show up, the crews will show up,” he said.