Sitton: Natural gas is crucial to Texas’ future

Sitton: Natural gas is crucial to Texas’ future
Midland Reporter-Telegram l June 25, 2016
By Trevor Hawes

Energy giant BP recently released a statistical review indicating that the U.S. set new records for oil and natural gas production in 2015. Natural gas consumption nationwide increased 3 percent while coal consumption fell nearly 13 percent.

Railroad Commissioner Ryan Sitton spoke with the Reporter-Telegram on Thursday to discuss BP’s findings, Texas’ role in production and how he feels the federal government unnecessarily takes too long when permitting liquefied natural gas export facilities.

MRT: What do BP’s findings mean for the natural gas industry in Texas?

Sitton: Texas has clearly been the country’s leading oil and gas producer — that’s not even really news. What is news is that the market continues to demonstrate that natural gas is going to be the key fuel for us.

As the population expands and uses energy resources, you can see that natural gas is not only going to grow with that growth, but it’s going to be a disproportionately large growth. We expect that Texas is going to have even bigger opportunities in natural gas in the future.

MRT: With the low price, is it worth it to extract natural gas right now?

Sitton: You’d have to ask the producer about the spot price, the transportation costs — those sorts of things.

However, I think in the short-term, we’re going to see pretty competitive commodity prices. I think they’re going to be a challenge to the commodities market for a while because there is so much gas on the market because of the Marcellus.

But people tend to forget the ancillary gas, where people are drilling a well for oil and gas is coming out, as well. They’re capturing and marketing that gas, even sometimes at a loss because they’re making money because of the oil, so with all this gas on the market, we’re waiting for consumption and demand to grow. We’re going to have these low prices for a while.

Now, when you go down the road four to five years, though I don’t think it’s necessarily going to take that long, we can see a point at which exporting natural gas, expanded use in power and expanded use in transportation all drive up the demand for natural gas. We’ll absolutely see the price go up in the future.

MRT: How do you feel about the U.S. and its urgency to export natural gas?

Sitton: I think that the industry has demonstrated a lot of forward-looking aggressiveness, if you will. In other words, recognizing places like Europe and Japan, where they’re paying four to five times as much for natural gas than we’re paying here. So, they say, “Look, that’s where the market is. They are in the opposite condition that we’re in.”

Take Europe, for example. Europe only produces about half of the gas it uses; it has to get the other half from other places, the largest being Russia. The industry has recognized this opportunity for a decade.

The disappointing part has been that the federal government has been a poor partner in this. They have slow-played permits for natural gas; their regulatory structure has been overly burdensome. It’s only in the last couple of years that the federal government has demonstrated any urgency to support this initiative, and it’s been because overseas countries have been screaming for help.

You had European countries saying, “Please, help us. Open up these gas markets so we’re not beholden to Russia,” and finally the State Department begins to get more aggressive. It’s just a shame that it took overseas people calling for it as opposed to just responding to what U.S. industry was asking for.

MRT: Does the federal government take too long to approve liquefied natural gas export facility permits?

Sitton: Absolutely. These natural gas export facilities are relatively basic processes. They are compression and liquefaction, storage and transportation. These are not overly complex processes in the grand scheme of industrial facilities. They can design these things from soup to nuts with very tight specifications for construction in under a year.

Surely, our permit process, which doesn’t require that level of work, should be done in less than that amount of time. This is something that should be done in months.

MRT: Does the U.S. have enough natural gas to last a long time?

Sitton: If you said, ‘Ryan, how many years of natural gas do we have in this country today when you look at proven and technically recoverable reserves,’ the round number is 100 years. We have almost as many years of natural gas (left) than we’ve (historically) used. When you look at the levels of natural gas that we’re using today, we’re using twice as much as we were using just 15 years ago.

The amount of natural gas in this country is absolutely massive. This is a big opportunity for our country.

MRT: What about natural gas infrastructure in the Permian Basin?

Sitton: What you’re going to find in the Permian Basin is that it’s not so much that we don’t have the infrastructure for natural gas; it’s that we do have the infrastructure for oil. Given even $50 oil, there’s so much opportunity there that that’s where people are putting their investments.

For example, you can say you’re going to expand infrastructure for gathering systems and pipelines for natural gas. Sure, there is that product there, but why would I do that if there is 10 times as much money to be made on the oil that’s there? There are reservoirs that today are still making premium dollars — the Spraberry, the Wolfcamp, those stacked, paying trends, they’re commanding big premiums in terms of the acreage costs, and that’s all based on the oil.

It’s not that the infrastructure (in the Permian) is not there; the dollars are not there to be made in natural gas today.

Read the original article here.