Unconventional shale plays—including the Eagle Ford—have transformed the U.S. economy in multiple ways, a panel of industry experts agreed at Hart Energy’s 5th annual DUG Eagle Ford conference in San Antonio. That transformation will continue in the foreseeable future, they added.

“The shale revolution is what is driving our economy,” said Richard Cargile, midstream president for Energy Transfer Partners LP, in his opening remarks. He added that shale-play development “has been the real stimulus package” that pulled the nation out of recession. The shale revolution has had an impact in multiple ways, he noted—creating jobs, stimulating demand for machinery and tools, higher tax revenues and putting money in the pockets of mineral-rights owners. Cargile pointed out oil-industry employment has climbed 26% more than non-farm employment overall since the recession officially ended in 2009.

The impact has been significant, he added. Cargile quoted statistics that the U.S. produced some 48 billion cubic feet per day (Bcf/d) of natural gas before the development of the unconventional shale plays started. Today, the nation produces around 68 Bcf/d “and we’re headed to 100 Bcf/d,” he said.

“It all leads to cheaper manufacturing, exports and higher petrochemical demand,” Cargile said. U.S. energy production will exceed demand in 2018 “and exports will start to take off. … We don’t have the capacity to consume all of the natural gas, natural gas liquids and condensate we will produce, and that will lead to exports.”

Domestic coal-to-gas conversions will raise gas demand further, he predicted. Cargile said some 50 gigawatts of coal-fired power generation will convert to gas by 2020, equivalent to 4 Bcf/d in new demand, “and gas has half the carbon footprint of coal.”

But handling that abundant gas production has proved a challenge to the midstream, and new pipelines and repurposing of existing systems have been the result. The Marcellus and Utica plays have reversed the traditional Gulf Coast and Rockies gas flows to the Northeast. He pointed out that if the Marcellus-Utica were in a separate country, the Appalachian Basin would now be the fourth-largest gas producer in the world.

Cargile said there will be some 25 Bcf/d of new gas demand around the Gulf Coast in the next few years, comprised of about 3 Bcf/d of new industrial demand, 4 Bcf/d of coal-to-gas power conversions, 6 Bcf/d of gas exports to Mexico and around 10 Bcf/d of LNG exports. Also, some 3 million barrels per day (bbl/d) of NGL—growing to 5 million bbl/d soon—needs to find markets, either in new domestic cracking capacity or as exports.

Energy Transfer Partners is the largest intra-state gas transmission system in Texas, so it has played a key role in moving Eagle Ford production to market. Responding to that demand has required the firm to make significant investments in new headers and pipelines and repurposing existing pipeline assets, he said. Energy Transfer “was in last place” in the Eagle Ford but has moved up rapidly to handle the play’s growing need for gas processing capacity.

Sam Margolin, a director in the equity research department of Cowen & Co., pointed to the Eagle Ford’s comparatively good midstream infrastructure as a plus for producers that has helped the play grow rapidly.

“The Eagle Ford has been logistically advantaged relative to other shale plays in the Lower 48,” he said, pointing to multiple pipelines that serve the region, the close proximity of waterborne transportation at Corpus Christi, Texas, as well as that port city’s sizeable refining capacity. “We’ve always know there’s great rock in the Eagle Ford,” and the region’s midstream infrastructure has produced strong prices for the play’s production.

The midstream reflects the play’s increased production through significant capital expenditures that will further enhance the Eagle Ford’s midstream assets.

“We’re strapped in for a very fast rate of growth out of South Texas,” he added with a chuckle.

The projected “Gulf glut,” in which the Cushing, Okla., crude glut would simply move south as new Cushing-to-the-Gulf Coast pipeline capacity came on “never seemed like a credible case to me,” Margolin said. Growth in demand has lessened the potential glut and kept prices comparatively stronger. “Companies have the opportunity to lean into the product coming their way and create a price advantage,” he added. Margolin noted Gulf refineries, most of which are geared to run heavy crudes, have been adding topping units to handle the Eagle Ford’s light, sweet crude.

“The [refining] system has been more flexible than it has been given credit for,” he noted. Gulf refineries are approaching zero light crude imports as a result of the Eagle Ford.

Crude oil exports are likely “eventually” and that will further enhance the attractiveness of South Texas production. “Condensate export policy has implications for company capital allocation and has potential to significantly enhance returns,” he said. But free crude exports will take significant legislative reform and could even require changes to the Jones Act and other related legislation.

Kevin Phillippi, a consultant with A.T. Kearney, took a broader, worldwide view on how the light crudes flowing from the Eagle Ford and other North American shale plays have impacted both U.S. and foreign refining capacity.

U.S. refining margins “have been on a roller coaster” for years, he said, with 2005 to 2007 as something of “a golden age of refining” when crude prices were comparatively low, gasoline and other product prices were comparatively high and plant utilization rates were high. Refining profitability “tanked” in 2009, he said, due to the recession, but has climbed since, thanks to the favorable spreads between shale crude prices and Brent—a major advantage for U.S. refiners.

“But what about everyone else?” he asked. There are many variables but a key metric is return on capital employed (ROCE), and he discussed ROCE by regions. North American refiners have done well with profitability climbing for the past five years. “Other areas, not so much. In Europe, pretty much everything that could go wrong has,” he said—high feedstock costs, declining product demand and very strict regulation.

Africa has had similar problems, and Latin America is troubled too with political unrest in Venezuela and Brazil an added problem.

The U.S. Gulf Coast is “very well positioned” due its outstanding scale, complexity and advantageous feedstock costs. As a result, Gulf Coast utilization rates have remained at 90% or better, “much higher than any other region.”

Long term, Phillippi projected current, shale-borne economic trends will continue for some five to 10 years.

These worldwide refining trends are good news for Eagle Ford producers and midstream operators, although its light crude “presents refiners with certain economic and operational challenges.” But the downstream has shown it can adapt, as Margolin also noted.

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