With a current shift in its exploration and development (E&P) to oil and away from natural gas, El Paso Corp. CEO Doug Foshee predicted Wednesday that wholesale gas prices will stay low at least into, if not through, 2012, and his national pipeline operator should thrive nevertheless and be ready to take advantage of an uptick when the overall economy begins recovering.

Foshee made the comments as part of a third quarter earnings conference call in which El Paso reported markedly higher quarter over quarter results ($133 million, or 19 cents/diluted share, in the third quarter this year, compared with $58 million, or 8 cents/diluted share, for the same period in 2009). Nine-month results showed $659 million in profits, compared to a loss in the first nine months last year of a negative $841 million.

Overall Foshee said El Paso in the last quarter "made substantial progress against our goals for the quarter, and made several moves designed to position us for long-term success." In its pipeline business several key projects, including the much-anticipated new Ruby Pipeline from the Rockies to Oregon, are under construction and will begin commercial operations next year, he said, noting this part of El Paso is now "in full execution."

Except for Ruby, all of the pipeline projects coming into service late this year or in 2011 will be on time and "substantially under budget," said Foshee, noting that all of the projects, including Ruby, will produce $100 million, or 25%, of construction savings.

Noting that El Paso's shift to more E&P emphasis on oil doesn't necessarily reflect its long-term outlook on natural gas, in response to an analyst's question, Foshee made his prediction for continued depressed wholesale prices next year and into 2012. "I think there is a good chance gas prices are going to stay relatively low for 2011 and into 2012" with the eventual rebound coming from a combination of macro factors, he said.

"That combination includes a recovery in the U.S. economy with GDP up for some sustained period of time, the beginning of the impact of old coal-fired [electric generation] plant retirements, and the continued falloff of gas exports from Canada. How you assess the timing of this, however, is subject to a great deal of uncertainty."

Foshee used the example of looking at recent U.S. gas projections for next year from the five largest prognosticators, showing that by the end of 2011 the estimates "diverged by up to 5 Bcf/d in a 6 Bcf/d market," he said. "There is a lot of uncertainty."

El Paso is trying to position itself for "not losing the optionality for what we think is a very favorable macro for gas in the long term," Foshee said. "And in the interim we have the ability because of the repositioning of our E&P portfolio to take advantage of a favored commodity right now in oil."

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