Encana Corp. CEO Randy Eresman on Thursday joined a growing chorus of professionals who are urging the natural gas industry to champion the advantages of using gas not only for more power plants but also as transportation fuel.
His comments about increasing the use of North America’s vast gas resources came during a speech to analysts at the Morgan Stanley Energy Ideas conference (see Daily GPI, July 9). Encana is Canada’s largest gas producer, and it’s one of the leading developers of unconventional fuels in North America.
“If anyone believes anything about shale, it should be that we should run fleets [of commercial vehicles] on compressed gas, if we can,” said Eresman. Exporting excess North American gas also “could be meaningful, but it will take some time to build facilities…”
As Encana grows as a company, “we’ve also put together a strategy for growing natural gas demand,” he said. “We want to develop a ‘natural gas demand economy,’ so that Canada can be an advocate to participate in natural gas use.
Among other things Encana has worked to encourage demand growth north of the border through the Canadian Natural Gas Vehicle Alliance (CNGVA). The alliance seeks to develop government policy and increase spending to encourage substitution for oil products, especially in commercial driving fleets.
Lately the CNGVA has upped its efforts on the retail side as well, adding C$1 billion in aid to build a natural gas filling station network along Canada’s busiest freeway between Toronto and Montreal.
“There’s a huge effort to be done in the education of the public to make sure everyone understands natural gas as we do at Encana,” said the CEO. “It should play an increasing role as a reliable supply of domestic energy to meet environmental mandates.”
A proposal by the U.S. Environmental Protection Agency (EPA) last Tuesday to reduce sulfur dioxide and nitrogen dioxide emissions from power plants should go a “long way to increase demand” for natural gas as an alternative fuel over coal, he said.
“I think the most important thing that could affect gas demand are the coal-fired generation signals that are getting to places like Colorado,” Eresman said, noting the state’s recent decision to build only gas-fired power facilities in the future (see Daily GPI, April 20). “The new regulation forces coal out…
“If that could be adopted by other states, that could be a positive. That EPA announcement, if it’s enacted as proposed, also would have a material impact on price.”
Encana “has a vision of the future with natural gas as a preferred fuel for generation and vehicle transportation,” said Eresman.
The EPA announcement “anticipates 1.2 GW of coal-fired generation will be taken off the market by 2014,” he noted. “If all of that was made up by natural gas, it could add 15 Bcf/d of demand.
“It probably won’t be all taken up by natural gas, but there will be a lot of additional demand.”
The North American gas market today is “almost infinite compared with current production,” said Eresman. “There’s an opportunity in the future” for automobile manufacturers, which are “all talking about natural gas vehicles in upcoming years. “It already makes tremendous sense because the economics associated with the fuel are so much better today…”
Encana is using a $6-7/Mcf price forecast in its projections going forward, with its average production costs at around $4/Mcf. “That’s the Nymex [New York Mercantile Exchange] natural gas price to get a 9% return,” said Eresman. “The average for the rest of the industry may be a dollar or two higher than that.”
As it works on efficiencies in its onshore plays, “possibly another dollar could be peeled off that number on the price side,” he said. For now escalating costs have not become an issue.
“Today in our portfolio we have almost our entire rig fleet under long-term contract, and they are fit-for-purpose rigs of the highest quality. There’s very little extra cost there. “Steel has been one of those things that come into costs,” he said. “A couple of years ago the price ran up, and then it fell dramatically last year. It has the potential to rise again…it depends on what happens worldwide.”
Encana is beginning to see “quite a bit of pressure” cost-wise for pumping equipment, but “we have most of the costs locked up this year.”
However, there’s a battle for equipment among oil and gas producers, he said. “There’s a lot of competition between natural gas and shale oil producers, lots of competition for services,” said Eresman. “Longer term, the area should see a wholesale change to the business that might occur in the next generation of fit-for-purpose and pumping equipment” because of differences in oil and gas shales.
Encana doesn’t have a large position in shale oil, “but we do have some liquids rich [leases] in parts of our portfolio that we are chasing a bit more aggressively,” said the CEO. “The fortunate thing about having a large land base, something that somebody else does works for you…”
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