Shying away from any political observations on what a presidential change in Washington, DC, might bring, speakers in keynote addresses and panel discussions focused on financial and environmental regulations, shale developments and future pricing as the key drivers in the natural gas industry at the LDC Gas Forum Midcontinent meeting in Chicago, held Sept. 10-12.
Generally, the speakers agreed that natural gas prices will rise, supply-demand will reach more of a balance, and the future national and global economic recovery at least partially will depend on the domestic energy boom tied to shale plays continuing.
While speakers shied away from political discussion, there was widespread support for the conclusion that new Dodd-Frank financial regulations covering energy trading will add substantially to costs, as will the eventual compliance of coal-fired generators with stiffer mercury emission limits on power plants. The former could be trouble for the industry, the latter a windfall.
Studies on the potential cost impact of Dodd-Frank on the gas industry are “very significant,” said Matthew Picardi, a vice president for regulatory affairs at Shell Energy North America. “There are potentially hundreds of millions of dollars over a number of years because you have to deal with new capital requirements, such as having more collateral for transactions,” said Picardi, who cited ballpark estimates in the $30-40 million range per deal annually. “You’re talking about $200 to $300 million over a 10-year period, perhaps.”
A fellow panelist, Jeff Welch, senior vice president at EDF Trading North America LLC, agreed with Picardi, noting his firm’s analyses have shown the same magnitude of impact, what he called “significant numbers.”
But, Jim Duncan, chief analyst and commodity market strategist for ConocoPhillips Gas and Power, downplayed the impact of Dodd-Frank because the gas industry “is out front on it and leading the parade.” Further, “[the Cross-State Air Pollution Rules (CSAPR)] died, but it is not dead; it is has another acronym — [mercury air toxic standard (MATS)] — and that could have a significant impact over the next couple of years because we have already seen the power industry response to what it thinks will happen [from the additional Environmental Protection Agency regulation].”
For the gas industry, speakers generally concluded that CSAPR was not a major problem even before the courts shot it down (see Daily GPI, Aug. 27), and the MATS follow-up could further back off coal and boost the gas-fired power segment.
Duncan called MATS an “encore” for the EPA’s CSAPR rules in a broader industry landscape he characterized as exhibiting the “winds of change,” that could trigger “the law of unintended consequences.”
Regardless of the outcome of the November presidential election, Duncan said “the reality of the natural gas and broader energy landscapes is that generally they have a pretty smooth line of increases over the long haul no matter what regulation comes out.”
Duncan and other speakers said that the gas industry has already begun to answer some of the problems raised by increased clean air regulations. He includes hydraulic fracturing among the issues that can be resolved by the industry itself working with the regulators.
Welch called CSAPR “a nonevent for all intents,” and he sees the gas industry thriving if it maintains a healthy supply picture through a continuing combination of technology and efficiency innovations. Technological changes now allow supplies to be “manufactured” at a rate closer to swings in demand, and the pending MATS rules could equate to another 4-5 Bcf/d of additional domestic gas demand in the United States, he said.
“Despite the pullback of rigs in the dry gas areas, we have maintained an adequate level of supply,” Welch said. “The productivity-per-rig has increased dramatically, and we see that continuing.”
Welch painted a bullish global picture in which shale development in various areas of the world will influence worldwide gas flows from 2015 and beyond. He estimates U.S. liquefied natural gas (LNG) exports at 4-6.5 Bcf/d and perhaps eventually another 1.5 Bcf/d of exports to Mexico.
A senior analyst from Genscape Inc., Andy Krebs, agreed on the high level of significance the proposed mercury rules could have on the coal industry. He thinks it could be “very painful” for coal producers and coal-fired power plants.
Genscape sees gas prices ending 2012 about where they were at the end of last year, but by December this year it is predicting U.S. production declines that will continue into the summer next year, Krebs said.
“By next summer, we think we will see an average of about 1 Tcf year-over-year decline in gas production,” Krebs said. “But we think that still leaves about 1 Bcf/d of added gas power burn that will need to happen next summer.”
On gas prices in the United States, Duncan and a number of other speakers all concluded that they are on the rise, but no one would venture a guess on how high they might go in the near term.
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