Complete Story
05/09/2012
Shale Oil & Gas Drive Opportunities
Distributors benefit from recent growth in oil & gas markets
Many distributors across sectors have benefited from a surge in oil and gas markets over the past few years in part due to a boom in shale gas and shale oil exploration and production.
But while many companies have positioned themselves to serve these markets in recent years, they aren’t always reliably strong, according to Eric Smith, associate director of the Tulane Energy Institute, a part of Tulane University in New Orleans, LA.
More recently, the supply of natural gas has risen and as a result gas prices have hit a low point, which is great for consumers, Smith said. But this means that drilling for gas is slowing down at the Marcellus Shale and other plays in the U.S.
FPDA member Livingston & Haven, Charlotte, NC, has seen this fluctuation in its business. The distributor supplies hydraulic motor circuits to an OEM who manufactures heat exchanges used on generator sets required for fracking. Hydraulic fracturing, or “fracking,” requires rigs to drill down then horizontally below the earth’s surface before fracturing the rock and releasing petroleum or natural gas. Thanks to this technology, supplies of oil and gas previously thought to be unobtainable have become targets of mass production.
Newer assessments from the EIA and U.S. Geological Survey found that only 3 percent of the potential shale gas reserves in the U.S. have been tapped.
Tim Gillig, vice president of sales for Livingston & Haven, says that though the business has been booming for the past three years, L&H is starting to see a slowdown in the market as supply outpaces demand and lowers prices for natural gas. “It is the old supply and demand rule that is kicking in,” Gillig says. “Too much supply for the current demand. This means both the coal and gas markets are slowing for us.”
The attention has recently shifted to oil. “The bad news is with low gas prices and high oil prices, they won’t be drilling for gas,” Tulane’s Smith said. “They’re drilling for oil.”
Calgary, Alberta-based P.S.I. Fluid Power, an FPDA member, is growing fast, in large part due to markets for oil. In fact, the distributor has doubled the size of three of its facilities in the past two years. In one location, it expanded by building a shop from which it specifically services the oil and gas sector. P.S.I. is not only benefiting from general growth in the economy but also from a newer service offering it has put together to serve project work in oil and gas markets.
The Oil Opportunity
According to a USGS report, 56 trillion cubic feet of shale oil and gas is left undiscovered, amounting to 23.9 billion barrels of oil in the U.S. Oil shale plays, identified by a solid bituminous material called kerogen, is found in Ohio, Indiana, Kentucky, Colorado, Wyoming, Utah and California.
The largest shale play is in the Monterey Shale in southern California, which is estimated to hold 15.3 billion barrels of technically recoverable oil, or 64 percent of estimated undeveloped shale oil resources as of January 2009, according to EIA.
Other sources point to the Bakken and Eagle Ford shales, assessed to hold some 3.6 billion barrels and 3.4 billion barrels of oil, respectively. The Bakken Shale in North Dakota, Montana and Alberta, Canada, ushered in a boom in those areas.
The Alberta resource—also called the Athabasca oil sands—is heating up this year as a hot spot. These sands are made of sandstone that’s saturated with a dense form of petroleum called bitumen. Already it serves as America’s biggest oil supplier, and has the potential to limit imports from the Middle East.
The EIA projected that oil from Alberta alone will rise from 1.7 million barrels a day in 2009 to 4.8 million barrels in 2035. (Planned oil sands projects in Canada are outlined by the EIA here.)
A rise in oil prices has encouraged further exploration of oil in The Devonian-Mississippian Shale where 98 percent of near-surface mineable resources are in Kentucky, Ohio, Indiana and Tennessee. Not only does the shale have oil potential but gas potential, as well, according to the U.S. Geological Survey.
Environmental & Regulatory Concerns
Distributors say ongoing conversation about the safety of extracting oil and gas using new technologies creates uncertainty in these growing markets.
Fracking continues to be a target of environmentalists, who say it may contaminate groundwater and even cause earthquakes. Just this month, Vermont announced it may be the first state to outlaw the practice, even though it has very little in terms of energy reserves. It’s unknown how that move will affect other states. Other states, including New York and Maryland have moratoriums on the practice while its impacts are studied.
Concerns about environmental impacts will prevent oil exploration in the near future at some sites, including the Green River Basin Shale, found in Colorado, Wyoming and Utah. Federal bans restrict oil exploration of this shale, which is estimated to hold the largest deposit in the world, as much as 1.4 trillion barrels of oil, according to USGS. Some reports say that while there’s not exploration, permits to drill for testing have been issued. (Learn more from the USGS.)
A federal ban on drilling in ANWAR—the Alaska National Wildlife Reserve—will likely continue.
Some concern arose over the transportation of crude oil from Alaska to parts of the U.S. when further phases of the Keystone XL Pipeline were halted by government officials to complete more detailed environmental impact testing. Already built pipelines draw oil from the Athabasca Oil Sands in Canada to refineries in Illinois. Further expansions were proposed to bring oil to Montana and Cushing, OK. Get the latest on the Keystone XL Pipeline Project here.
Smith said despite government setbacks in building out these subsequent phases, distributors should have confidence that it will move forward.
In the meantime, industry groups continue to track regulatory developments closely.
“The shale revolution is changing the face of American energy development,” the American Petroleum Institute’s President and CEO Jack Gerard said recently in a news release. API represents more than 500 oil and natural gas companies. “It’s boosting domestic oil and natural gas production, putting hundreds of thousands of people to work, and delivering added billions in revenue to state and federal government.
“How much more will depend in part on government regulations.”
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