The plunge in crude oil prices since last summer is creating adverse impacts sooner than expected, and could endanger the economic renaissance the US has undergone from its dramatically increased production if crude exports are not authorized soon, Encana Corp. Chief Executive Officer Douglas J. Suttles warned.
“Most people thought at the end of 2014 that there wouldn’t be a production response until 2016. Many expect to see one now in another month,” he said during a May 6 luncheon appearance as part of the US Chamber of Commerce Foundation’s CEO Leadership Series.
Prices that previously stimulated development of US and Canadian unconventional crude resources have plunged to a point that several employees who were hired by drilling contractors and service and supply companies are being laid off, Suttles said.
“Today’s low oil prices are taking their toll on workers, communities, and investors,” he said. “The downturn is being felt across the country, and it doesn’t help that US producers are getting about $10/bbl less than their foreign competitors for similar oil because they’re prohibited from selling to foreign customers.”
Allowing US producers to sell their crude overseas would benefit, and not harm, consumers because gasoline prices, which are set globally, would come down in response to more crude being on the market, he said.
It would also increase tax receipts at all levels of government, create jobs, increase investments, and create new energy trading relationships with other countries, Suttles said. He urged his audience to press Congress and the Obama administration to act before more damage is done.
An additional benefit
“When we walk into discussions with policymakers from both sides of the aisle, many remind us of something we in the oil industry hadn’t considered—the geopolitical implications of the US becoming a steady and reliable global oil supplier,” he said.
Suttles said the US and Canada have been able to exploit their tight oil resources because much of the land is privately owned and there’s an established set of regulations which provide investment certainty. “The regulatory environment made the difference,” he said. “Rocks like this are located elsewhere in the world, and they’re not being produced.”
Continuing improvements in technology also are making a difference, Suttles said. “We were used to getting about 35% of the resources from conventional fields,” he said. “In unconventional plays, it’s 8-12% so there’s still plenty of oil left to recover. We went from 5 million b/d of production to 9 million b/d very quickly. I don’t think anyone will walk away with 90% of the oil left in the ground.”
Growing unconventional natural gas, as well as oil, production means the US and Canadian industry will require more specialized professionals to work alongside a highly trained blue collar workforce, he said. “Training people to use the new technology will be a real challenge, but our industry has a remarkable retiree force available to lend a hand.”
Unconventional gas production has created a US price differential so great that manufacturers have built plants, Suttles noted. Authorizing more LNG exports would not have a significant impact, he said. Exporting more US gas to Mexico by pipeline would enable that country to pursue its already impressive energy reforms more aggressively, he suggested.
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