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Return to Profitability? Opportunity is Here Now!

    May 2018 / Vol. 8 Issue 3

Return to Profitability? Opportunity is Here Now!
By: Greg Kozera, Director of Marketing, Shale Crescent USA

Last month I talked about how the technology of horizontal drilling and hydraulic fracturing has disrupted the natural gas and oil industry and created the shale revolution. In less than 10 years the United States has gone from energy crisis to the leading natural gas producer in the world. I talked about how the Shale Crescent USA Region has gone from 3% of US natural gas supply in 2010 to 30% of gas supply in 2017. Most important a new Study by IHSMarkit released in March says, a new petrochemical plant built in our Shale Crescent USA Region would have a 4 times greater cash flow and save $3.6 Billion over a 20-year period, compared to similar plant built on the Gulf Coast. The Shale Crescent USA is now most profitable region in the world for a petrochemical plant. For the past 75+ years the US Gulf Coast has been the most profitable region for petrochemical plants. This major disruption can also create opportunity for your company and the people of this Region.

I noticed this morning on the “World Oil” magazine site that the natural gas price is $2.84 per MCF at the Henry Hub. Many of you might not remember the early 1980s but natural gas prices were just over $3 per MCF. Our natural gas prices are lower today than they were 35 years ago! Can you think of anything that hasn’t gone up in price in the last 35 years? I know that I’m earning a lot more today than I was in the 1980s. It shouldn’t be a big surprise that energy stocks are down from previous highs and some companies are struggling.

Some things have changed from the 1980s. We now have the largest natural gas field in the world under our feet. In the 1980s our production potential was limited.  We couldn’t produce enough natural gas to even fuel our region. We needed gas from southwest pipelines to meet our demand. The house I live in was built in 1983 on top of one of Columbia Gas Transmission’s largest natural gas storage fields. We have an all- electric home. We don’t even have natural gas available in our neighborhood because in 1983 gas supply was so low they couldn’t run any new distribution lines. Because of this the cost to heat my house with electricity this winter has been as high as $600 a month. My son has a similar sized house and four kids. His highest gas bill was $200 a month.

Today, thanks to Marcellus and Utica production this Region is now an exporter of gas in all four directions. We are sending gas to Canada and the Midwest. The southwest pipelines have been reversed and Marcellus and Utica gas is being shipped south. Pipelines are being built to supply the southeast states of Virginia, North and South Carolina. Gas is also being shipped east to Cove Point Maryland where it is being shipped around the world. What a difference a few years makes. Natural gas from the Shale Crescent USA is having a global impact.

 

Even the largest production companies in our region in the 1980s couldn’t produce enough natural gas to influence the gas market. Today this region produces so much gas that it is the market. The largest producing companies in our region have the capability to influence the market price for natural gas by their production. The Marcellus and Utica wells of today are world class wells. Despite all of all of the demand growth from pipelines naturally gas prices have remained stable and low because of increased supply. Forecasts don’t show any significant change in price. This is great for consumers but not so good for producers. Can anything be done to improve profitability for natural gas producers in the Shale Crescent Region and ultimately the rest of the local oil and gas industry?

The answer may be in this illustration you saw last month showing the location of the Marcellus and Utica wells and processing facilities in the Region.

The ultimate key to improved profitability is to increase demand for natural gas close to the well head. This is something we have control of and can accomplish. Increased demand close to the wellhead will reduce transportation costs for producers and improve profitability. The best way to do this is to bring in industry that uses natural gas. This Region has a unique opportunity that is rare in the world. Manufacturing and petrochemical plants built in this region have the largest natural gas field in the world under their feet. They are also close to most of the demand for products in the United States. This can be a huge competitive advantage for them. As great as this is, it is meaningless unless they are aware that it exists.

The sales expert, Jeffrey Gitomer says, “If they know you, like you and trust you, they may buy from you.” Companies need to know about the advantages the Shale Crescent USA Region offers before they can buy into the idea to locate here. The mission of Shale Crescent USA (the organization) is to carry this message to the world like we did in Japan in January and the World Petrochemical Conference in Houston in March. We are working hard to communicate the result of the IHSMarkit study to the world showing our Region’s greater profitability and competitive advantage to the petrochemical industry.

WIn the 1800s it was the oil and gas from local wells that created the initial industrial development in our Region. We had a thriving glass industry for decades because we had natural gas, water, rail and were close to most of the population (demand) in the United States. We had a second industrial boom after World War II because natural gas from the southwest could be transported here on the long- haul pipelines built to transport oil during the war. These were built because German submarines were blowing up our oil transport ships.

When United States oil and natural gas production declined, the Middle East and OPEC took over as the world’s leading oil and gas producer and we became the “Rust Belt”. This is changing and industry is coming back to the United States. We need to make sure that industry knows to come here. The Saudi Arabian delegate at the World Petrochemical Conference (WPC) in 2017 said, “Saudi Arabia can no longer compete with the United States in oil and gas.” It is because of transportation costs.

Shale Crescent USA has had a lot of success so far marketing this Region. This is a large task and is getting larger as we begin to create interest like we did at WPC. We can’t do it alone. We need the help and broad-based support of the oil and gas and manufacturing industries as well as communities.

Now is our time if we can seize this opportunity. The window won’t be open for long. We can choose to ship all of our natural gas and liquids to the Gulf Coast, Europe and Asia and become a Banana Republic. We can continue to pay the transportation costs to do this and accept low profitability. We can let the Gulf Coast and the rest of the world have the high wage manufacturing jobs that could be ours. We can let our children and grandchildren continue to leave for better jobs. Or…

We can choose to make a difference and keep a portion of our natural gas and liquids here that can fuel a new industrial revolution eliminating the “Rust Belt” and give our people a reason to hope. We can create high wage career oriented jobs and raise the standard of living for the people of the Shale Crescent USA Region. We can improve the profitability of the oil and gas industry. We can create more jobs to keep our young people here. We can do all of this and with a little creativity improve the environment of the planet.

We encourage you to help the Shale Crescent USA effort and make a difference in the future of this Region. Please contact us to find out how you and your company can make a difference at; www.shalecrescentusa.com or www.gkozera@shalecrescentusa.com

A disruption has been created. The world has changed again and we are in the middle of it. Are YOU ready? Thoughts to ponder.

Greg Kozera is the Director of Marketing for Shale Crescent USA www.shalecrescentusa.com . He has over 40 years of experience in the energy industry. Greg is a leadership expert with a Masters in Environmental Engineering and the author of four books and numerous published articles, including numerous presentations, radio shows and TV.

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