North American Oil & Gas Producers Plan Nearly $50 Billion in Project Spending

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Written by John Egan for Industrial Info Resources (Sugar Land, Texas)--Over the next 12 months, the North American Oil & Gas Production industry plans to begin work on more than 250 projects valued at nearly $50 billion, according to Industrial Info's North American Oil & Gas Project Database. One factor driving scheduled project spending is continued high prices for crude oil. Another factor is low natural gas prices, which benefits companies that want to build terminals to export liquefied natural gas (LNG).

About 152 of these projects, valued at $27.1 billion, will be in the U.S., while Canada will host 105 Oil & Gas Production projects valued at $22.7 billion. Industrial Info does not expect all of these projects to kick off as scheduled; based on experience, some projects will be cancelled and others will be delayed. However, the Oil & Gas industry is quite dynamic, and new projects are proposed nearly every day. Assuming crude oil prices remain high and natural gas prices remain low, Industrial Info expects this industry to experience a significant amount of project spending over the next 12 months.

Project spending by the Oil & Gas Industry will be a prominent topic discussed at the upcoming North American Gas & Oil Expo & Conference, which will be held June 11-13 in Calgary, Alberta. Industrial Info will be exhibiting at the event. We encourage readers to stop by our booth, #5117, to speak with an expert on the subject and see how Industrial Info's online suite of database tools and analytic applications can help identify project spending opportunities in the Oil & Gas Industry.

Click the image to see a breakdown of scheduled project spending by North American Oil & Gas Producers over the next 12 months.

About $20 billion of planned project spending over the next 12 months is connected to LNG export terminals. Several of these terminals are scheduled to be built in the U.S., but only one facility--Sabine Pass, owned by Cheniere Energy Incorporated (NYSE:LNG) (Houston, Texas)--is fully permitted and under construction. A second terminal, Freeport, is awaiting final regulatory approval from the Federal Energy Regulatory Commission (FERC), which is expected later this year. Construction on the Freeport export terminal is scheduled to begin by year-end 2013. For more on the Freeport terminal, see May 22, 2013, article - Freeport LNG Export Terminal Wins Approval from U.S. Department of Energy, Next Stop is FERC.

"We don't expect all of these LNG export terminals will actually be built," said Jesus Davis, Industrial Info's vice president of research for the Oil & Gas Production, Transmission and Terminals industries. "However, there is a strong and growing global market for LNG, and North American export terminals have some competitive advantages over proposed terminals in other countries, notably Australia."

Canadian oil sands projects are the next-largest segment of scheduled project spending by oil & gas producers. Several billion-dollar heavy bitumen projects in Alberta are scheduled to kick off over the next 12 months. But these projects have historically had difficulty starting according to schedule, largely because of their significant costs. Producers must make sizable investments in upgrading facilities to thin the heavy crude before it can be transported to market. Also, many of these oil sands projects are located in remote areas, increasing project costs. Finally, the crude that is produced in Western Canada has relatively high sulfur content, lowering its value in the market. Canadian heavy sour crude is typically priced as Western Canadian Select, which is deeply discounted compared to lighter, sweeter crudes like West Texas Intermediate (WTI), Louisiana Light & Sweet (LLS), Bakken Light, and Brent.

Limited outbound transportation options also have contributed to the price discount imposed on WCS crude oil. However, Canadian elected officials and energy companies are aggressively exploring ways to get more Canadian crude oil to market. One proposed export pipeline, Keystone XL, remains snarled in the U.S. over political differences between Democrats and Republicans. For more on that issue, see January 23, 2013, article - Nebraska Governor Approves Amended Keystone XL Pipeline Route. Another proposed export pipeline--Northern Gateway--also has been delayed, this one by political opposition in British Columbia. For more on that project, see January 3, 2013, article - Northern Gateway Pipeline Eyes Mid-2014 Decision from Canadian Government. A third project, the conversion of an existing gas pipeline to carry crude oil, is nearing the end of a two-month "open season" to test market interest. For more on that issue, see May 7, 2013, article - TransCanada Holds 'Open Season' for Proposed Crude Oil Pipeline Conversion.

"For some Canadian oil sands projects, particularly grassroot upgrader facilities, it can be difficult to make the economics work," Davis said. "The added production and processing costs, the price penalties for the crude, and the limited transportation options really put Canadian producers in a competitive bind."

Low natural gas prices, created largely by the dramatic expansion of supply resulting from widespread use of hydraulic fracturing techniques, are a critical ingredient for a proposed $1.3 billion plant that will convert natural gas to gasoline. The plant, scheduled to be built in Lake Charles, Louisiana, is owned by G2X Energy Incorporated (Houston, Texas). Construction is scheduled to kick off early next year. The facility is scheduled to begin operating in early 2017.

"Our natural gas-to-gasoline conversion process--developed and backed by one of the world's largest energy companies--is a proven solution for the clean and economic production of transportation fuels from abundant domestic natural gas," G2X Energy President and CEO Timothy Vail said in a statement earlier this year.

Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, and eight offices outside of North America, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle™, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities.