Despite the near-stampede to oilier unconventional plays, the US upstream sector remains a highly natural gas-focused industry that is navigating a "messy period" that may not end gracefully.
That is the view of John Richels, president and chief executive officer of Devon Energy Corp., Oklahoma City, who expressed ideas on the longer-term outlook at a session leading up to the Summer North American Prospect Expo in Houston.
The "shale revolution" in the US has upset the established order of hydrocarbon markets, politics, and the stock market, Richels said.
Because of geology and extraordinarily exciting shale plays, the industry transitioned in a short period from years of a close supply-demand balance to abundant oversupply, and many have not adjusted, he said.
Markets provided $44 billion in 8 months in 2009 that aided subeconomic growth by funding drilling to hold acreage in shale plays.
Washington lawmakers seem unaware of the revolution that has brought forth a many years' wealth of clean natural gas energy and are looking at legislation that could hamstring the industry. They haven't grasped that the North American gas discoveries can provide a vast energy reserve without the subsidies required for wind and solar.
Expanding production of natural gas liquids can be expected to exert downward pressure on NGL prices, especially for ethane, for which Richels said demand is limited and inelastic.
Richels expressed surprise at the low level of merger and acquisition activity the past 2-3 years. He urged company discipline in focusing on returns and pursuing a mix of gas and liquids assets to avoid getting too caught up in the stampede.
Such discipline could, when the messy shale acreage holding emphasis ends, help bring gas supply and industry costs back into balance perhaps without an ungraceful round of mergers and acquisitions, Richels said.
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