Daniel Jaeggi, co-founder and president of Mercuria Energy Trading, freely admits he obviously doesn't possess a crystal ball to help him predict the volatility the energy industry might expect to experience in the coming five years, particularly as it pertains to North American shale.
"The differential," Jaeggi said, "depends on a lot of things," including the refining margin, product value and environmental factors like IMO 2020 (the International Maritime Organization's mandate that ships must use marine fuels with a sulphur content of no more than 0.5-percent sulphur to reduce greenhouse gas emissions).
"With the number of variables that are going to be in that equation, I don't know [the future]," he said. "But here is what I do know: I know that, over time, the appropriate value always gets found. We have lots and lots of examples of that."
"The differential volatility will be with us until the end of time," Jaeggi continued, discussing North American shale's growth potential with colleagues at CERAWeek by IHS Markit, held recently in Houston. "The only thing we can do is make sure we create a brand, because we are competing in a branded environment."
Chris Carter, managing partner for Natural Gas Partners Energy Capital (NGP), noted the industry has seen natural gas production from associated gas grow from 7-8 billion cubic feet (bcf) per day in the past year.
"Projections are that, by 2020, natural gas coming out of the Permian Basin could be 15 bcf per day," he said.
Carter added although long-haul pipeline takeaway capacity is currently insufficient to transport that gas out of the basin, "additional infrastructure is coming" but will likely be delayed until 2019 or 2020.
"These timing issues will create constraints for producers who are trying to get their gas out to the market," Carter said.
On the positive side, Carter said, "for all those Permian companies, on average, only about 10 percent of their revenue from their production stream comes from natural gas. So it is not a big driver of their economics."
Exhaustion and revolution
Mark Papa, chairman and CEO of Centennial Resource Development, believes "a resource exhaustion" is beginning in two prime U.S. shale oil plays.
Papa estimates "up to 70 percent of the good geologic locations" in the Eagle Ford and Bakken plays have already been drilled.
"So, as you go forward in those two plays, you will be drilling the remaining 30 percent of good rock," Papa said. "The rest of the locations will be tier two and tier three, and there's a big drop-off in quality.
"What I expect to see that will play out in 2018, 2019 and 2020 is that, with the results we are going to see out of the Eagle Ford and clearly out of the Bakken, a lot of capital will get pushed into those plays. But the resulting oil, I am afraid, is going to be disappointing to forecasts."
The Permian is "a little different story," Papa said.
"My forecast is that the aggregate oil production coming out of the United States is going to be on the low range of most people's forecasts," he said.
Regardless, Katharine MacGregor, principal deputy assistant secretary for U.S. Land and Minerals Management, believes the current shale revolution has changed the world and shale's potential is "nearly limitless."
"This [Trump] administration, with this president and the leadership by Secretary Ryan Zinke and the Department of the Interior, is focused on unleashing American energy ⦠and making sure it can reach market and reach the American people," MacGregor said.
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