Do You Have the Investments to Retire?
The story of American Energy constantly changes. As you can read from these blogs, these changes happen on a daily basis. It is virtually impossible to keep pace with all of them. Technology, applied science, regulatory, economics, local/regional/national/international events, capital flows, upstream, midstream, downstream – each of these areas is important. Each interacts with the others. Strong and weak links appear and disappear across these spectrums.
Let’s try to observe some of this flow.
Texas has been the leading developer of energy since the early 1900s. Today, the Barnett and Eagle Ford shale oil fields are exploding in exploration, exploitation, development and delivery. They are now joined by the newest name, the Spraberry Wolfcamp field. This is rapidly becoming the 2nd largest oil field in the world. Only the Ghawar in Arabia is larger. This new field has between 50 and 100Bbbls of recoverable reserves – no one knows for sure yet. The Barnett has 23B, the Eagle Ford has 13Bbbls. North Dakota’s Bakken field has 27 Bbbls, the Monterey shale has $45Bbbls. Yet, they pale by comparison.
Pioneer has 750,000 of leased acreage and has explored a small portion, 13 test zones. The shale is 4,000’ deep. Compare that to a more typical 400’ depth for other fields such as the Eagle Ford. This depth will require decades to fully develop. Hydraulic fracturing from pads with multiple wellheads using the most advanced ball and sleeve technology may extract an EUR (estimated ultimate recovery) far higher than today’s figures.
These technologies are evolving in the field. Just five years ago, plug and perf was the dominate form of fracturing the deep rock. Today sleeve tech is the cutting edge. On the surface, CNG trucks and frac rigs are becoming more prevalent as service providers for operators find these new power plants less costly, quieter and with significant reductions in VOCs (volatile organic compounds) and CO2.
The acreage under which lies the shale deposits are owned by farmers, ranchers and landowners. They typically receive 12% of the earnings from the gas and oil flows. This income is revitalizing the Heartland of America with capital, taxes, new roads,, schools, bridges and hospitals. Unemployment in rural America where the shale plays lie is far lower than in the urban decay of many metropolitan areas.
These trucks are being manufactured in joint ventures between truck manufacturers like Cummins and Peterbuilt and engine builders like Westportand BAF. Car manufacturers are following close behind, as Honda, GM and Fordare producing commercial vans and trucks and cars for the retail and private car markets. Filling stations are adding CNG lines, such as Flying J across the Midwest. Fleet operations such as UPS, Waste Management and public transportation fleets like school buses, public buses and airport shuttles are adding CNG/LNG vehicles.
This natural gas comes from the other major shale fields in America: the Marcellus, Haynesville, Woodford, Utica and others. Pipelines are being welded by union workers to bring this gas to market. These pipelines will ultimately fully integrate the shale fields. The gas has a primary use far beyond filling up drivers’ gas tanks – nearly 35% of the electricity produced in the U S comes from natural gas. this is supplanting coal as a driver of power production. The new dual cycle gas turbines in many utilities today are far more efficient at extracting the energy from a molecule of methane. Their use also results in massive reductions in GGEs, greenhouse gas emissions (CO2), for the nation.
Manufacturing plants are being built along the pipelines to take advantage of the low cost of this new, old, fuel source. Refineries, chemical plants, metal bashers, fertilizer plants are eachl taking advantage of this energy bonanza. New construction means new jobs. New plants mean new jobs, brought in from overseas as the U S boom in manufacturing is just beginning to grow. ‘Wet gas’, which is ethane, butane and propane, is separated from the methane dominant in fractionating plants along the pipelines. Ethane is the primary ingredient in pvc – the pipelines that run throughout your home – as well as dozns of other applications.
Downstream producers create everything from WD-40 to car wax and lip gloss. One firm, Calumet, creates more than 1,000 products from the hydrocarbon base oils. Others distribute propane for home and farm heating and BBQs. Butane is the source of every explosion you have ever seen in the movies.
Ships take diesel, propane, gasoline and other refined fuels from America to ports across the globe. We have regained our status as the major fuel supplier to many nations – including those that have the b=hydrocarbons but lack the expertise: Venezuela and Nigeria for example. In 2017, the first LNG ships will depart U S ports in Louisiana and Texas to supply Europe and Asia with our cheap natural gas. The $10+ price differential between our produced gas and their consumed gas is being fully exploited by firms such as Cheniere. They have the capital to build these ‘gas trains’ and regasification plants at $10B each. The ships cost $250M each. Twenty year contracts are in place to price the gas at prevailing market rates plus 20%.
Jobs are plentiful in the energy industry. Unskilled workers can earn $60,000 a year for tough, hard, repetitive, dangerous work on the rigs. Union welders can earn $3,000 a shift putting down a mile a day of pipeline. Geologists, engineers, environmental scientists, regulatory and legal authorities are all in rich demand. Try a visit to www.rigzom.com for a refreshing view towards America’s employment future.
The companies in the field doing this work are independent operators, small to mid-sized firms with decades of expertise and hard edges to their knowledge. The major oil companies admit they just don’t understand hydraulic fracturing. >From ExxonMobil to Chevron to Statoil to the sovereign firms, the biggest producers look for the biggest plays, leaving the small jobs to the innovators such as Linn Energy, Breitburn, Pan American and Energy Partners.
This is a story just beginning to unfold. We are in the first inning of a long season. The U S team has the experience, technology, landownership rights, legal support and legislative/regulatory approval processes in place. We shall maintain our significant lead for at least the next decade.
Fear not for the future of this nation. The New American Revolution is upon us!