Midstream is often considered a local, regional or at most, continental issue, but discussions of how nascent exports of LNG from the U.S. have already changed global markets were front and center at the fifth annual University of Oklahoma Energy Symposium on March 30.
Another major focus was how water has quickly risen to be a major component of the midstream equation.
“It used to be that natural gas a continental commodity,” said Bruce Stover, member of the Energy Institute board, a founder and retired executive vice president of Endeavour International, a North Sea exploration and production company. “Now we see a global market for LNG.”
Mike Ming, general manager of GE Global Research Oil & Gas Technology Center, said that was a positive development, even if more producers have made for lower prices at present. “Nodes make a network more robust. The global economy for gas is huge. Right now the limiting factor is not demand it is capital. These things are hugely expensive.”
Ming contrasted the current cautious investment in North American LNG liquefaction with the rush to build regasification plants two decades ago.
“In the early 2000s the U.S. pushed the panic button and built a massive LNG import infrastructure, of which we have used none,” he said. “And unfortunately, you can’t just run these things backwards.”
For the units running forward he added that the U.S. is likely to become a major global competitor.
“The new, enlarged Panama Canal becomes important,” Ming said. “The U.S. gas can now supply Chile.”
James Smith, retired professor of finance at Southern Methodist University, noted that U.S. competitiveness is boosted not just by abundant supply but also by the flexible contract terms being offered by sellers.
“The rest of the world is limited by oil-linked, long-term contracts,” he said. “That limits their ability of the existing nodes to function efficiently in the network.”
Mark Mills, senior fellow at the Manhattan Institute and a partner with Cottonwood Venture Partners, stressed two recent milestones in the global LNG market: “There is now a futures market, and for the first time ever we have seen a shipment change direction en route. That is common for oil tankers but used to be prohibited for LNG. So if you are looking for a signal in LNG, it’s behind us. The previously existing producers have already started to renegotiate their terms.”
Taking a geopolitical perspective, Stover said, “the ability to move gas anywhere is significant. China is trying to shift away from coal for power generation. Natural gas has to be a part of that answer. Their pipeline to Russia is behind schedule and over budget. Selling LNG to China would be good for our balance of trade, and also defuse tensions in the Pacific. The geopolitical benefits of LNG are off-the-charts good. Not just for the midstream guys in the U.S. but for the country as a whole.”
The Water Challenge
Just as LNG has moved from a regional topic to a global topic, water is moving from a local matter to a continental challenge that is expected to involve the full midstream sector.
“Sixty years ago we talked about gas as a waste product of oil,” said Jim Summers, CEO of H2O Midstream. “Today, as we know, it has evolved into a full commodity in its own right. That was from use in power generation, but also from cryogenic separation into ethane for petrochemicals and propane for rural heating and cooking.” He sees the same thing happening for water—it will be further processed and segmented, and new markets will be found.
Water seems to have burst into the midstream consciousness, but Summers explained that several factors came together. “Not only did the shift to unconventional development mean more water produced, but it also means that less water was used for things like enhanced recovery.”
Just as importantly, “The costs for water acquisition and disposal all went unnoticed when oil was $100 a barrel. No one cared about costs. At $40 oil, everyone cares.”
He said he recalled that when the Marcellus was first being developed, Pennsylvania did now allow disposal wells and was reluctant to allow pipelines to get produced water out of state. The only option in many cases was to truck the water to disposal wells in Ohio at a rate of $10 to $15 a barrel.
“Now, in the Permian, we are moving away from trucks to pipelines for water,” he said. “There is a drive for reuse because there is not enough supply. Just as we used to talk about the oil industry and now talk about the oil-and-gas industry, in 10 years we will talk about the oil-and-gas-and-water industry.”
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