Project Spending Rising for North American Oil & Gas Production, Petroleum Terminals, a "Navigating the Currents of Change" Webcast on Industrialinfo.com

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Written by John Egan for Industrial Info Resources (Sugar Land, Texas)--Sustained high crude oil prices and a shortage of crude oil storage capacity are driving increased project spending for North America's Oil & Gas Production and Petroleum Terminals industries, Jesus Davis, an IIR oil expert, said in an exclusive "Navigating the Currents of Change" interview.

"We're seeing a very healthy increase in project spending this year for North American Oil & Gas Production," said Davis, IIR's vice president of research for the Terminals, Transmission and Production industries. "A lot of this is being driven by increased project activity in Canadian oil sands. High crude prices make more of these projects economically viable."

Industrial Info is tracking 225 North American Oil & Gas Production projects with a total investment value (TIV) of $23 billion that are scheduled to kick off in 2011. By contrast, at this time last year, IIR was tracking 236 Production projects worth about $18 billion that were scheduled to kick off in 2010. Davis noted that West Texas Intermediate (WTI) crude oil averaged about $80 per barrel during the second half of 2010, but has surged to an average of about $105 per barrel so far in 2011.

"We've seen a slight decrease in the number of active North American Production projects compared to this time in 2010, but a sizable increase in the dollar value of those projects," Davis noted. Western Canadian projects account for about 52% of all North American Production spending that is scheduled to take place during 2011, he added.

Click on image at right to view a year-over-year comparison of scheduled project spending for North America's Oil & Gas Production Industry.

One of the largest active North American Production projects is the $2 billion Christina Lake Phase III bitumen processing plant project in Alberta, Canada.

In the U.S., Davis said drilling for gas in shale formations continues to drive strong increases in scheduled project spending for the Oil & Gas Production industry. "The Eagle Ford Shale in South Texas and the Bakken Shale in North Dakota are the hottest areas for shale gas production right now, because they both contain meaningful deposits of natural gas liquids (NGLs) and crude oil, in addition to natural gas," Davis observed. Being able to sell three types of hydrocarbons creates additional value to operators compared to other shale formations--like the Marcellus--that contain only one or two types of hydrocarbons. The Marcellus Shale, located underneath Pennsylvania, West Virginia and New York, contains NGLs and natural gas.

For more on the continued growth in the U.S. natural gas resource base, including gas from shale formations, see May 3, 2011, article - U.S. Natural Gas Resource Base Grows, Keeping Prices Low.

Davis noted that the controversy surrounding hydrofracturing, or "fracking," has not stymied project activity in shale formations. In fact, he said, U.S. shale-related project spending is up, partly because the world's largest petroleum companies are increasingly interested in these projects. "We're seeing increased levels of spending in shale formations, partly because the super-majors are becoming involved there. They are acquiring acreage and even buying smaller companies that operate there. The super-majors bring added cash flow and more technological resources that could be used to solve environmental issues" associated with hydrofracturing, Davis added.

For more on hydrofracturing's controversies and challenges, see February 24, 2011, article - Shale Gas PR Problems Place Billions of Dollars of Project Spending at Risk.

Turning to U.S. petroleum terminals, Davis noted that 2011 scheduled project spending has nearly doubled from year-earlier levels. Industrial Info is tracking 503 terminals projects with a combined TIV of $5.4 billion that are scheduled to kick off this year. By contrast, at this point in 2010, Industrial Info was tracking 317 projects valued at $2.9 billion.

Click on image at right to view a year-over-year comparison of scheduled project spending for North America's Petroleum Terminals Industry.

"One trend we're seeing is a boom in spending to add crude oil storage capacity," Davis said in the interview. "Most of the project activity we're seeing is incremental expansion of existing terminals. So far this year, every terminals owner in Cushing, Oklahoma, has started projects to expand their storage capacity. When this wave of project activity is over, in late 2012 or early 2013, crude oil storage capacity in Cushing will increase by about 25%."

The expansions of crude oil storage capacity in Cushing, Oklahoma, as well as a $175 million grassroot crude oil storage facility in Vacherie, Louisiana, are driving a sharp increase in scheduled project spending in the Southwest region.

Davis added that natural gas storage also needs to expand, but low gas prices are making it hard to justify expansion or grassroot construction projects. "We expect to see new natural gas storage projects proposed because we are running out of gas storage. We have been at historically high levels of storage. As we produce more gas and build more gas-fired electric generation, we will need additional gas storage capacity. But low gas prices make it harder to develop new storage capacity, because the economics of storage projects typically are based on gas prices."

"A number of gas-storage projects have been permitted and engineered, but they're not moving forward because their owners can't make money with gas selling for about $4 per million British thermal units (MMBtu) today and about $4 per MMBtu a year from today," Davis said. "We see larger companies acquiring those projects and constructing them because they have the ability to wait a little longer for gas prices to turn around."

High crude oil prices and an active slate of capital and maintenance projects for liquids storage makes it particularly important for readers to visit IIR at two upcoming industry trade shows: the International Liquid Terminals Association (ILTA) show, June 6-8 in Houston, Texas, and the Gas & Oil Expo, June 7-9, in Calgary, Alberta. IIR will be exhibiting at Booth 200 at the ILTA event and Booth 1837C at the Gas & Oil show.

Davis extended an invitation for readers to visit with IIR at one of these important industry events. "Using IIR's databases and analytics, equipment manufacturers and service providers can more rapidly identify decision-makers and focus their sales efforts. In dynamic markets like oil & gas production or petroleum storage, timely market intelligence can help you close more sales."

Click here to hear this and other "Navigating the Currents of Change" webcasts, covering industrial trends and projects throughout the world.

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