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Shales Give the U.S. Economy Wings, Executives Say

The energy industry -- thanks to advances in drilling and production techniques resulting in growing natural gas and oil supplies -- can lift the U.S. economy out of its doldrums, but only if government regulation and permitting requirements don't get in the way, speakers at a recent industry conference in Houston said.

"Extracting gas from shale catapults the U.S. into a new era of producing cleaner and more affordable fuel source," said David Pursell, managing director at Tudor, Pickering, Holt & Co. "This is the shale revolution. Some of the cheapest Btus in the world are in U.S. domestic natural gas. If you look at the U.S. manufacturing sector, it is driven by natural gas and electricity.

"When gas prices are low, it keeps power prices low, so the guy making widgets in the U.S. is now at a competitive advantage for the first time in a very long time relative to competitors anywhere else in the world. Low gas prices are good for the U.S. economy, for the manufacturing sector, and it is fantastic for the Gulf Coast because of the petrochemical and refining complex."

"The United States has 25% of global gas reserves and 15% of global shale reserves. It also has more than 75% of the horsepower available for drilling those reservoirs globally. The rest of the world is beginning to understand the demand for this equipment and is asking us to build that equipment for them. We need low energy prices, so we can manufacture and export that equipment," said Stephen Ingram, technology manager with Halliburton.

But, it all takes fracking. All unconventional resources, including shale, coalbed methane and tight gas must be explored using hydraulic fracturing to be economically and commercially viable, Ingram said.

"If hydraulic fracturing was limited or even prohibited as a result of increased regulation, we would see a 45% decrease in natural gas production and a 17% decrease in oil production in the U.S. within the next three years," he said. "These resources would have to be replaced by imported oil from Venezuela, Iran or Libya."

Ingram said 53% of all natural gas produced in the United States comes from shale, coalbed methane and tight gas. In the last 10 years, shale gas grew from 1% to 17% of U.S. natural gas production.

"From a global perspective, the demand for unconventional energy sources is constantly growing," Ingram said. "China's increasing gas demand, Germany disbanding its nuclear program by 2022 and the U.S. Environmental Protection Agency substantially increasing regulations on the coal market, all point to an increased demand for natural gas.

According to Ingram, the hydraulic fracturing industry in the U.S. uses less than 1% of the water used to irrigate the entire U.S. corn crop and less than 20% of golf course irrigation water. Moreover, shale gas development requires 2.3 gallons compared to 11 gallons for nuclear power and 2,500 gallons for biofuels per MMBtu produced. "Unconventional resources and fracking have a great future," Ingram said. "They give us a great opportunity to collectively bring clean and cheap energy."

If perhaps the federal government doesn't fully appreciate the energy renaissance that fracking and other technologies have brought, the investment community has noticed and given its approval.

Tom Hargrove, managing director with GulfStar Group, discussed the state of capital markets in the energy industry. "The market is progressing back to the level of transactions and capital available in 2007 and 2008," he said. "There are a lot of buyers and sellers in the market right now. Moreover, lenders are getting aggressive again, making borrowing possible."

From a capital standpoint, shale plays require more equipment than conventional sources, Hargrove said. "A lot of companies started developing these resources, spent a lot of money and are already committed to developing them. That will require more equipment and more fracking," he said.

"Low natural gas prices have a great impact on the petrochemical complex economics. This is the manufacturing sector in the United States where we have the biggest advantage over other countries, due to the concentration of refining and petrochemical infrastructure in one geographical location. The discussion frequently is focused on energy, but a lot of plastics and other products are manufactured here that require us to have those petrochemical resources."

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