USAEE: US economic growth likely to be slight in 2009

Dec. 10, 2008
The faltering economy and its effects on oil and gas production were among the main topics discussed Dec. 3-5 at the North American conference of the US Association for Energy Economics in New Orleans.

Marilyn Radler
Senior Editor-Economics

HOUSTON, Dec. 10 -- The faltering economy and its effects on oil and gas production were among the main topics discussed Dec. 3-5 at the North American conference of the US Association for Energy Economics in New Orleans.

Dennis Lockhart, president and chief executive officer of the Federal Reserve Bank of Atlanta, gave the keynote speech and outlined his views on the current downturn in US economic activity. The Atlanta Fed expects employment to weaken further. Personal consumption and home values will decline over the next few months, while falling commodity prices, including oil prices, will ease global inflation pressure.

Lockhart said the Atlanta Fed expects little US economic growth in 2009, adding that recovery will require house price stability, consumer confidence, and credit market confidence.

Unconventional resources
Turning to oil and gas, the conference addressed unconventional resources—shale gas, oil sands, and oil shale—and the risks their development faces.

Marshall Carolus of Intek Inc. outlined some of the hurdles facing the development of US oil shale, a resource that totals 6 trillion bbl. One such hurdle is access to land, as about 70% of this oil shale lies beneath federal land. Environmental permitting is also an obstacle to development, as are low oil prices.

But conversion technologies for producing oil shale are advancing rapidly, Carolus said. He added that sustained production potential for this resource in the US is up to 2.5 million b/d.

Deepwater gulf
Brian Reinsborough, president of Nexen Petroleum USA Inc., told the conference that the prospect for long-term oil demand growth is strong, which is one of the reasons his company operates in the deepwater Gulf of Mexico.

Also making the deepwater gulf attractive is the facts that it has large undiscovered resources and its fiscal regime is stable and attractive, among other reasons, Reinsborough said. Reinsborough added that there are challenges to operating there, including resource constraints as people and rigs move to operate in other parts of the world.

Independent operators will cut exploration and production activity as a result of lower oil and gas prices in the current recession, Reinsborough said, as those companies struggle with financing, while major operators will review their exploration plans, reduce costs, and exploit opportunities for mergers and acquisitions.

He sees the recession as a short-lived and says projects may slow in the short run, but deepwater projects are long-term focused. Assuming that capital is available to contract owners, deepwater rigs—which are still in short supply—will continue to drill, he said.

Contact Marilyn Radler at [email protected].