Economist says shale plays change the game

10 08, 2012 by Fuel Fix

The booming oil and gas shale plays that have transformed South Texas, North Dakota and other parts of the United States have changed the industry but still leave a number of open questions, an energy economist said Friday.

“It’s hard for the public to understand the impact this is having,” said Michelle Foss, chief energy economist at the University of Texas at Austin’s Bureau of Economic Geology. “We have been a major buyer of oil.”

Oil imports are dropping and there is talk of the United States beginning to export petroleum products, although Foss said that is a volatile political issue.

She addressed an audience at NCI Building Systems’ annual engineering conference, which met at the Lone Star College conference center in Tomball.

Even if the United States doesn’t export oil or natural gas, Foss said, production from shale fields has boosted the economies of a number of states, including Texas.

“All of Bexar County is responding to everything that has been done to build up the Eagle Ford,” she said of the shale play in South Texas.

And more attention than ever is being paid to security in northern Mexico, she said, as the government considers drilling in shale formations there.

The problem with soft natural gas prices are well-known, as drilling has shifted from natural gas to oil over the past four years, and Foss said prices for both commodities need to stabilize for producers to remain in the field.

“I think it’s more expensive than is understood, both in the industry and by the general public,” she said. “Even if everybody did everything they could to bring the cost down, it would still be tough.”

She suggested natural gas drillers won’t return to work in significant numbers unless prices reach $5 or $6 per million British thermal units.

Oil producers will have trouble if prices drop below $85 a barrel, she said.

U.S. natural gas closed Friday down 1 cent at $3.396 and oil down $1.83 at $89.88 in trading on the New York Mercantile Exchange.

Talk of exporting natural gas, converting terminals built to receive liquefied natural gas from abroad to use as export hubs, has gained traction in some quarters because it would cause prices to rise.

European countries would like to see competition for Russia, the main supplier there, Foss said.

But she said it would also cause a political fight.

Chemical companies would fight the proposal because they use natural gas as fuel and feedstock. They have flourished, with some making big plant expansions, because of low gas prices.

The shale boom has also caused refineries to rethink their strategies.

Many U.S. refineries went through a wave of expensive retrofitting in the early 2000s to handle heavier crude oil imported from overseas, she said.

Now they are dealing with lighter crude from shale plays in the United States.

But getting the oil to the refineries remains a challenge, as the country continues to have a shortage of pipelines. Rail has taken up some of the slack, she said.

The economic benefits are real, but the questions for the future are real, too, Foss said.

“There’s a lot of good news out there,” she said. “There are also a lot of tricky things going on.”