At the National Association of Steel Pipe Distributors' (NASPD) Fall Conference at the Mills House Hotel in Charleston, South Carolina on September 15-17, Publisher and Editor-in-Chief of Energy Business Watch Andy Weissman's presentation "Impact of Shale Gas on Energy Pricing and US Energy Policy" kept attendees talking for hours after the extremely detailed analysis on the oil and gas industry, the future of gas prices, and how it all affects the energy pipe industry.
Weissman told listeners that for the next couple years, natural gas demand is anticipated to remain flat. As of September 16, Weissman said that natural gas prices are close to the lowest prices so far this year, and he expects some modest falloff going forward.
Although natural gas demand is expected to be flat for some time, it's following a major paradigm shift in terms of drilling. Weissman explained that just three and a half years ago, shale gas was only a modest part of overall natural gas drilling, and we had been in a situation "where demand was growing for almost a decade," and resulted in huge price increases in natural gas in order to catch up with demand. But now, "we have all the supply we could possibly want," which is causing natural gas prices to fall.
And in shale plays, developmental costs are far below conventional sources--and costs continue to decline, especially for combination plays (natural gas and petroleum liquid). Over the last 12 months, the US has seen a "push for combo plays," he said--the Bakken, Eagle Ford and part of the Marcellus shale formations are among the fastest growing. Considering the rapid shale gas resources available, production can easily increase over the next five to seven years if demand warrants. Combo plays will be "the next wave" in the drilling in the US in the coming years, predicted Weissman.
On the oil side, there is the possibility for remarkable development in the future. According to Goldman Sachs, said Weissman, the US can become the largest oil producer in the world by 2016 because of the potential for the development of "oilier shales," and one of the great things about the US is that "we have tremendous energy resources."
As for the implications for pipe demand, Weissman said that more pipe is needed for one horizontal well (as opposed to a vertical well), and the use of horizontal drilling has been consistent as of late. "The rig count may be going down," he said, "but the number of wells may actually be going up."
In the current production environment, however, weather patterns are having huge impacts on drilling, and major hurricanes, such as those that recently hit the US East Coast, result in major losses of production. "Over the last two years, we've used more than 2 trillion cubic feet of natural gas than normal because of the weather."
Going forward, Weissman said that natural gas prices are very sensitive to supply and demand dynamics, and "natural gas prices are likely to be a lot more volatile in the next 12 months."