Opportunities in Shale – Feb 22, 2015

In our weekly podcast we discuss five things that happened last week:

  1. BP Energy Outlook Sees Bright Future or Gas
  2. Pres. Obama’s Council of Economic Advisers Praise Gas
  3. New Report Shows Opportunities for LNG Trucking
  4. Utilities Ask FERC to Step in on Clean Power Plan
  5. Gov. Wolf Makes a Threat (Maybe), But New York Towns Want In

Our interview is with Steve Myers, the coauthor of Tapping the Shale Gas Boom: How to Penetrate the Shale Gas Market, a book about marketing and business development in the region.

Click below to listen or find us on iTunes or Stitcher.

1.  BP Energy Outlook Sees Bright Future or Gas

Each year, BP publishes both an annual statistical review and updates to a long-term energy outlook. This year’s Energy Outlook came out last week and included a number of interesting insights.  The report this year expects growing oil and gas production from shale in the United States.  BP expects the increase in natural gas production will lead to increased trade in liquefied natural gas (LNG).  The flow of trade in energy is expected to shift, with oil and gas reversing direction and going from North America to China and India.  BP also calls for a price on carbon as the method for reducing greenhouse gas emissions.

One particularly interesting graph shows both that production is booming at historic rates, and that there is reason to think the boom will continue even with some drilling put on hold.

Shale Charts

BP also expects a robust LNG trade:

LNG Growth

2.  Pres. Obama’s Council of Economic Advisers Praise Gas

The President has a Council of Economic Advisers, which are a group of somewhat-independent economists that provide objective information to the White House.  One of their tasks is to provide the President an annual “Economic Report,” and the President then sends it to Congress along with his own report.  The President’s “report” is essentially a four page letter, while the Council’s report is about 400 pages of data and analysis.  The report is fairly objective, but clearly influenced by the political preferences of the White House.

The report has an entire chapter on the “energy revolution,” which it says involves changes in both production and consumption.  The report leads with increases in efficiency but acknowledges that “[b]reakthroughs in unconventional oil and natural gas extraction technology have reversed the decades‐long decline in their production.”  The report continued to show the White House’s favoritism of natural gas over coal and oil, saying the “composition of the Nation’s energy sources has begun to shift: petroleum and coal are now being replaced by the growing use of natural gas and renewables, which are cleaner sources with lower, or even zero, carbon emissions.”  The report touts the President’s Clean Power Plan, and regulations to reduce methane emissions.

The report has a great chart showing natural gas and renewables as the only growing sources of energy in the country:

Consumption Chart

The report does veer into territory that some will disagree with, by saying the “Administration has supported oil production on Federal and Indian lands.”  The report credits oil and gas production with creating a huge number of jobs, though says it is hard to fully appreciate the effect on employment throughout the economy.  Interestingly, the report takes a side on the ongoing dispute over whether U.S. liquefied natural gas exports will cause domestic price spikes.  It says “[b]ecause of high transport costs, even if a global market for LNG were to develop, domestic natural gas prices are likely to remain well below prices in the rest of the world for an extended period of time.”  It also says exports could create jobs, help U.S. allies, and clean up energy use overseas.  The report also notes the energy boom will require new infrastructure to be built.

Here is the chart showing the diverging prices that could lead to some exports:

Gas Price Split

3.  Utilities Ask FERC to Step in on Clean Power Plan

Last week the Federal Energy Regulatory Commission (FERC) held the first in a series of technical conferences to consider implications of the EPA’s Clean Power Plan.  Many utility operators shared their concerns about both infrastructure needs and reliability problems.  Many stakeholders are concerned that the EPA is focused solely on environmental issues, and does not have expertise in the challenges of operating an electric system.  Many have implored FERC to play an active role in both infrastructure build out and creating necessary flexibility.

4.  New Report Shows Opportunities for LNG Trucking

The University of California Davis Institute of Transportation Studies released a new publication last week entitled “Exploring the Role of Natural Gas in U.S. Trucking.”  Led by Amy Myers Jaffe, the report argued that increasing the use of LNG in trucks would be positive for U.S. energy independence.  A fast shift from diesel to LNG would be difficult and expensive, but small-scale refueling networks could be launched in high-traffic areas llike California, the Great Lakes, and the mid-Atlantic.

5.  Gov. Wolf Makes a Threat (Maybe), But New York Towns Want In

Two very interesting stories came out of Pennsylvania last week.  One relates back to Pennsylvania Gov. Tom Wolf’s formal proposal last week of a new severance tax.  In his comments, he said that the alternative to the tax is “no drilling” like they have in New York where fracking is banned.

Though Gov. Wolf tried to make clear he was not making a threat, some in Pennsylvania took it as one:

In a somewhat odd coincidence, it was reported last week that several towns in New York, calling themselves the Upstate New York Towns Association, are “conducting studies to determine whether it would be economically feasible to join Pennsylvania.”  The communities feel that the state ban on fracking is hurting their economy and they are wondering if joining Pennsylvania would create opportunities to drill.  The whole thing is a bit far fetched, as it would take approvals from both states and the federal government, but it is certainly is an attention-grabbing idea.

Interview with Steve Myers on Business Opportunities From the Shale Boom (Starts at 19:42)

Steve Myers is a marketing and business development professional who helps companies find opportunities in the oil and gas business.  His has had a long career in marketing, largely in the newspaper business and then later working with architects, engineers, and construction companies.  He is also the coauthor of Tapping the Shale Gas Boom: How to Penetrate the Shale Gas Market.  

The book was born out of a frustration experienced by Steve and his coauthor James Laero.  They attended a number of conferences early in the shale boom that purported to provide business development information to companies, but they found specifics were scarce.  They spent nearly two years writing a book filled with the information they felt was missing.

When Steve was first asked about opportunities in the Marcellus Shale, he ignored the question.  After the issue kept coming up, Steve decided he better learn something about it.  Pennsylvania has had a long history in the oil and gas business and that started making a bit of a resurgence, demonstrating Marcellus’ potential.

The heart of the book Tapping the Shale Gas Boom is marketing.  It starts with a history of the industry, and provides some background on the industry’s economics.  It is particularly aimed at small and medium sized businesses.  Steve is very positive about the future of the industry, regardless of the current fluctuation in oil and gas prices.  He said that companies must adjust to do business in oil and gas.  For example, oil and gas companies typically operate on 24-hour schedules.  That means anyone hoping to supply an exploration and production company needs to be prepared to make 2:00 a.m. deliveries.

Steve said one of his favorite success stories was about a fence company.  The fence company approached an exploration and production company with a fence recommendation.  Though the initial recommendation was not followed, the fence company earned some credibility and went on to be highly successful.  Welding, Steve said, is also particularly lucrative.  He talked about a group of welders that started a small operation and are all making six-figure incomes.  He said that the industry is really looking to become more efficient, and is very open to inventors and entrepreneurs who have cost-saving ideas.  Water conservation, in particular, is a coveted skill.  Pennsylvania has a strong tool and die industry that is benefiting from nearby oil fields.

He counsels companies to set up operations that are nearby and able to service any accounts with large exploration and production companies.  The larger companies vet their subcontractors, but want to hang on to any high-performing partners.  Turnover of subcontractors is a cost that most companies seek to minimize.

Steve said that protests against fracking go on every day and are an ongoing challenge.  He said he grew up critical of large oil companies, but has now come to really respect how they do business.  He said these companies are being challenged by low prices, and that will help mature the industry.  Regardless of the challenges, the opportunities will continue as production levels are still growing and there is still an enormous shale resource in the ground.  Steve argues this is a time of opportunity.

You can learn more or order the book at www.shalegasboom.com.