CERAWeek 2014 - The Next Stage of the North American Energy Renaissance

Atul Arya, IHS Senior Vice President, chaired a Friday morning session on "The Next Stage of the North American Energy Renaissance." Joining him were Barry Smitherman, Chairman, Texas Railroad Commission; Diane McQueen, Minister of Energy, Alberta, Canada; and Raoul LeBlanc, IHS Managing Director. The panel discussed unconventional oil and gas development in North America and the possible impediments to that growth. Key issues highlighted included the availability of capital for new play development, water resources, the supply of skilled labor, and government policies.

Barry Smitherman described the significant growth in both oil and gas production in Texas and mentioned how the $7 billion competitive renewable energy zone (CREZ) electric transmission project helps not only renewables growth but also oil and gas development in remote areas. Because of this connection, he encouraged the audience to remember that the "ultimate use, may not actually be [the] original use" for projects like CREZ. Mr. Smitherman also suggested that Texas is similar to Alberta, as both regions are leaders in energy development.

Diane McQueen also noted the similarity between Alberta and Texas as important energy producers. She mentioned the significant growth potential of oil sands in the province and that Alberta is interested in developing pipelines to access different markets. Ms. McQueen stressed the importance of Alberta as a secure source of energy for the United States and the world. She added that it is also vitally important to develop these resources in an environmentally friendly way. She concluded her prepared remarks with a description of environmental policy in Alberta and how the provincial government has improved regulatory efficiency.

Raoul LeBlanc gave the audience a breakdown of the unconventional gas revolution by categorizing plays into four development phases: the "proving phase," where developers try to acquire acreage and "prove that the reservoir will flow"; "optimization," where an enormous amount of experimentation on 1,000-1,500 wells is performed; "standardization," where a large amount of capital is focused on efficiency rather than "deep well science"; and "reinvention," where older wells are rejuvenated. Regarding the lack of gassy plays in the proving category, Mr. LeBlanc said that natural gas prices are currently too low to incentivize exploration, but the situation is different for oil prices and new oil plays. He also said that many plays are in the standardization stage, which is now absorbing capital and "to some degree" slowing the development of new plays.

Dr. Arya asked if oil production growth in North America is going to slow down. Mr. Leblanc said that it will not because of Eagle Ford and Bakken but that incubation of new plays may slow. He said that Wolfcamp and Bone Spring may support growth in the future. As for Alberta, Ms. McQueen said that there are still growth areas but also noted that the competition for capital-and how it is allocated to realized this growth-is now global. Mr. Smitherman added that the Permian Basin is like a "cake" in which there are still opportunities to drill into and extract resources from the various layers.

In response to Dr. Arya's question about water constraints, Mr. Smitherman noted that West Texas is challenging and that the industry is looking into how to use brackish water and non-water substitutes, but he thinks this is a "technology constraint that we can work through." Ms. McQueen added that Alberta is blessed with water resources but that it is important to ensure clean potable water for residential users.

Regarding pipeline development, Ms. McQueen said Alberta is working with various regulatory jurisdictions to create outlets into multiple markets. She said it is "important to have all [these] market outlets; it is important to make sure [Alberta is] a part of the global picture." Both she and Mr. Smitherman emphasized the importance of pipeline development for job creation-not just from the pipelines but also from the facilities that are connected to them.

Each panelist provided a perspective on Dr. Arya's question about what could slow development in unconventionals. Mr. LeBlanc noted the importance of price and how that incentivizes further development. Ms. McQueen said that attracting skilled labor is a major challenge for Alberta. Mr. Smitherman added that there are aboveground risks, noting that policies that could hurt growth "may not come from Austin [Texas], but they could come from Washington."

This article was published by S&P Global Commodity Insights and not by S&P Global Ratings, which is a separately managed division of S&P Global.