A?s the weight of the struggling economy settles on President Obama’s shoulders, he promises that new energy solutions will be part of the cure. But green is longer-term and has its limits. How many jobs does it take to build wind turbines or retrofit a building, as opposed to staffing 4,000 U.S. independents and keeping 1,500 drilling rigs turning to the right? Green is good, but it is not a panacea, nor even economic, yet. Consider the nation’s second-largest ethanol producer, VeraSun, which is struggling. In March it will auction off seven ethanol plants it acquired in a 2008 merger.


Everyone new in Washington comes with an energy agenda. Many believe in the links between economic recovery, energy security, climate change and international policy. Energy Secretary Steven Chu was on the steering committee that drafted the “100 Day Energy Action Plan” for the Council on Competitiveness. The council is a think tank of corporate CEOs, university presidents and labor leaders.


The energy secretary is supposed to focus on energy policy, but other high-ranking members of the administration are focusing on it too. Secretary of State Hillary Clinton testified how much energy matters to her foreign-policy strategy. And, former Marine Commandant and Supreme Allied Commander Europe, four-star General Jim Jones, has been named National Security Advisor.


He, too, has an energy agenda. In a speech in November, he outlined 88 recommendations for Obama on energy, while speaking as the head of the U.S. Chamber of Commerce’s Institute for 21st Century Energy. Basically, it was an “all of the above” energy supply scenario.


Meanwhile, investors, energy industry folks, and certainly anyone who owns a drilling rig, should not roll over and play dead. These challenging times will take a while to turn around, but it will happen. A falling U.S. rig count and lower OPEC output presages lower oil and natural gas supply, followed by higher commodity prices eventually.


At the private capital conference sponsored by the Independent Petroleum Association of America last month in Houston, speakers and attendees asked: Are we at the bottom yet? When will the upturn begin? No one knows.


Here is what we do know. In the first and second quarters of 2009, year-over-year earnings comparisons will stink for most E&Ps and service companies.


Debt is available from some banks, but it will cost more, as the spread to U.S. Treasuries widens dramatically. Expect to pay 9% to 15% on public debt. Private equity should be in its glory—plenty of unused dollars to deploy. However, further cash calls to institutional investors may go unmet as they work on their own balance sheets.


The U.S. onshore rig count is falling fast. At press time, Baker Hughes Inc. said the count was 1,508 rigs. That’s down 430 rigs or 22% versus the end-of-August peak. RigData said there were 1,630 rigs working, down 744 rigs or 31% from the peak it tallied on October 3.


Analysts are lowering their price decks and stock-price targets. Calyon Securities (USA) calls for the composite spot price of gas to average $6.25 per MMBtu for the year. The firm’s 2009 WTI oil forecast calls for an average $61.50 per barrel.


Morgan Stanley said in mid-January the firm’s new price deck was $5.50, some 23% below consensus at the time. “We see a balanced risk-reward ratio today of 2:1 based on a continued challenged commodity price environment. Significant risk to natural gas price suggests continued tough trading for the stocks. We see continued pressure on gas prices and oversupply extended into 2009…We remain wary of chasing relief rallies before fundamentals improve.”


Many analysts are sticking with $50 and $5.


From Pritchard Capital Partners’ Energize Conference held the week of January 12 comes this: “Investor and management sentiment on the natural gas market is extremely bearish. Most managements say they have never witnessed this situation before in their careers. The price signal is telling drillers not to drill, not to complete current wells and not to even think about exploration. The backlog of wells drilled and not yet tied-in will likely drive production growth through April and potentially the third quarter.”


Two drillers at the event predicted 750 to 1,000 rigs may go down before this is over. That would represent 40% to 50% of the peak U.S. count last fall. So far, the mostly shallow vertical rigs quitting work are not having enough of an effect to tamp down gas-supply growth.


Those focusing on high-return shale plays are redeploying capital to those locations. But even there, prudence is the watchword.

Have you registered for our 4th annual DUG: Developing Unconventional Gas Conference? It will be held in Fort Worth in an expanded format, April 7 and 8. Hear executives from BP, Petrohawk Energy, Range Resources, Clean Energy Fuels, and more. See you there!

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