Home' Trinidad and Tobago Guardian : March 5th 2015 Contents BG8 ENERGY
BUSINESS GUARDIAN www.guardian.co.tt MARCH 2015 • WEEK ONE
Aprediction that crude oil prices
will not remain low for a pro-
longed period of time and com-
panies should prepare for a return
to higher oil prices. It comes from
Tim Wernicke, general manager
of the country s third largest gas producer, EOG
Wernicke told a conference call to discuss EOG s
earnings for 2014 that oil prices were too low to be
produced over sustained period and there will be
a correction in the price of oil.
This was supported by EOG s chairman and CEO
William R Thomas who told the conference call
that prices were simply too low.
"The downturn in oil prices will drive significant
reductions in global supply and the market will
rebalance," Thomas said. "Our goal at EOG is to
exit this downturn in better shape than we entered
it."If correct, this will be good news for T&T and,
in particular, the Minister of Finance who has had
to deal with a further $7.4 billion deficit to his budg-
et.Wernicke said EOG was now positioning itself to
capitalise on oil prices when they rebound by con-
tinuing its exploration efforts while at the same time
not completing the wells so that when the prices
are higher it will bring that oil into production.
He said the company would also take advantage
of lower service prices which he revealed were now
between 10 and 30 per cent lower than before July
last year when oil prices began to fall.
Wernicke added that EOG had taken further
measures to reduce costs and it was now in a position
to have higher returns at a US$65 a barrel oil price
that it was at US$95.
EOG was once heavily reliant on the performance
of its T&T operations but with the advent of the
shale oil revolution and its ability to farm into oil
plays, the company s US operations have become
the crucial sector of its operations.
Thomas said in the fourth quarter of 2014, EOG
increased its US crude oil and condensate production
by 28 per cent, while total company crude oil and
condensate production rose by 26 per cent, compared
to the same period in 2013.
Meanwhile for the full year, crude oil and con-
densate production increased 31 per cent year driven
by 33 per cent growth in the United States. Natural
gas liquids (NGLs) production increased 23 per cent,
while natural gas production was flat. Overall the
total company production increased 17 per cent,
"EOG delivered both high returns and strong
growth in 2014, a unique accomplishment in the
energy sector," said Thomas.
"Our returns-focused capital discipline has been
at the core of EOG s culture since the very beginning.
We are confident we will continue to earn healthy
returns on our capital programme during this com-
modity downcycle and, more importantly, emerge
stronger and poised for significant long-term growth."
He said for the fourth quarter of 2014 net income
of US$445 million, or US$0.81 per share. This com-
pares to fourth quarter 2013 net income of US$580
million, or US$1.06 per share. For the full year, EOG
reported net income of US$2,915 million, or US$5.32
per share, compared to US$2,197 million, or $4.02
per share, for the full year 2013.
"The current environment brings more oppor-
tunities to lower our finding costs, improve our
returns and add high-quality drilling inventory. As
prices recover, EOG will be poised to resume strong
US oil growth," Thomas added.
The Energy Reporter
Once upon a time, in a
world in which oil was
costly and energy
sources seemed scarce,
the International Energy
Agency, a think tank for
countries which import
fossil fuels, produced a special report heralding
a "golden age of gas." That was in 2011. It
suggested that fast-rising demand, chiefly
from emerging economies and in power gen-
eration, could lead natural gas to displace
coal by 2030.
Big energy companies shared that opti-
mism. High prices and rising demand in
eastern Asia, especially in China and Japan,
encouraged them to pile into huge projects
in places such as Australia and Papua New
Guinea to produce liquefied natural gas, either
from offshore drilling or, in the case of a
US$20 billion project in Queensland by BG
Group of Britain, from gas found in coal beds.
America, awash with gas thanks to the shale
boom, began revamping coastal terminals
originally built for importing LNG, so as to
begin exporting it.
Something unexpected happened, however.
Coal, despised as the dirtiest fossil fuel,
underwent an unexpected renaissance,
notably in Europe, displacing gas in power
generation. This was partly because of plen-
tiful supplies of cheap coal on world markets,
and partly because the European Union s
rules for trading in permits to emit carbon
dioxide was so flawed that coal was not get-
ting taxed out of the market, as had been
intended. This week the European Parliament
made moves toward reforming the system.
Thus demand for LNG has been broadly
flat for the past three years. The result is a
buyers market, intensified by the recent
weakness in oil prices.
Natural-gas prices are plunging. This
month the American spot-market price, as
measured at the giant Henry Hub distribution
node in Louisiana, has been around US$2.75
per million British thermal units, the lowest
since mid-2012. The spot price of LNG in
the vital market of Japan fell to US$6.65 per
million BTU, the lowest level in five years,
and below the European price for the first
time in four years.
This is indeed a golden age, then, but for
natural-gas consumers, not producers.
Investors in large gas facilities such as liq-
uefaction plants are hurting. As with oil
prices, the gas-price slump is the result of
weak demand and booming supply, though
without the added ingredient of a collapsed
cartel. Millions of tonnes of new capacity
are coming online, as projects begun when
energy prices were high reach completion.
Global export capacity is set to rise by a
third, from 290 million tonnes per year at
the end of 2013 to nearly 400 million tonnes
by 2018. Australia will overtake Qatar to
become the largest exporter, tripling its capac-
ity to 86 million tonnes a year by 2020, and
America will start exporting this year. Two
giant LNG projects that tap into gas fields
off the coast of Western Australia are due to
come online next year: Chevron s US$30 bil-
lion, onshore Wheatstonnee complex and
Shell s Prelude plant, based aboard a giant
ship and costing perhaps US$13 billion. A
US$19 billion Exxon project in Papua New
Guinea began shipping gas last May, ahead
Now, in what a report from the research
firm Sanford C Bernstein calls an "anxiety
attack," new investment has stalled. No big,
new LNG projects have been announced for
The business is so capital-intensive that
long-term contracts, which account for three-
quarters of global trade, are essential. Such
contracts mean that weak spot prices are less
of a problem for gas-producing countries
than for oil states.
For energy companies, though, contracts
no longer are providing the comfort cushion
needed for big investments. Buyers are taking
advantage of the weak market, and driving
Last year Japan, for example, signed con-
tracts for gas at around US$16 per million
BTU. Now contract prices are forecast to fall
to US$11 or lower and, with the spot price
below US$7, such forecasts do not seem unre-
alistic. Given the cost of liquefaction and
shipping, American exporters could face loss-
es.The LNG industry s hopes rest on a surge
in demand. Latin America is showing an
unexpectedly strong appetite, sales to Britain
are up and Indonesia, once an exporter, now
is importing gas. The short-term picture is
somber, however. Economic growth is slowing
in China and weak in Japan. Even healthy
economies are using energy of all kinds more
Other fuels are competing strongly. Japan
is likely to restart some nuclear capacity this
year, and can burn cheap oil in some power
plants. China is pushing ahead with domestic
gas production, as well as clean coal and
renewables, all of which displace imported
gas in power generation. European customers
can use LNG as a bargaining chip against
suppliers such as Russia s Gazprom, but
demand in Europe is declining, not rising.
With so many energy consumers looking
for cleaner fuels, but not yet ready to give
up on hydrocarbons entirely, the long-term
outlook for natural gas looks strong. Demand
for gas as a transportation fuel is set for rapid
growth. Some carmakers, such as Fiat
Chrysler, are promoting gas-powered versions
of their vehicles, whose fuel economy makes
them attractive even at a time of cheap gaso-
The automotive industry is struggling to
meet ever-tighter emissions standards in
America, China, Europe and Japan, and one
way to comply with them is to sell more gas-
powered vehicles. Sales of ones that run on
compressed natural gas, such as motorised
rickshaws, are booming in China and India.
Indian Railways has begun switching
its trains to run on CNG. Worries
about pollution from the heavy oil
used by marine engines have prompt-
ed tough new emissions rules in the
Baltic Sea and in American coastal
waters. This is prompting a switch to vessels
that run on LNG.
Timo Koponen of Wartsila, a Finnish com-
pany that builds gas-powered marine engines,
said that the main constraint now is refueling.
America is opening its first LNG bunkering
facility, however, in Port Fourchon, La. It car-
ried out a trial refueling earlier this month.
A switch toward generating electricity in
smaller plants closer to consumers, which
cuts distribution costs, also is increasing
demand for natural gas at the expense of
Richard Kauffman, the head of energy pol-
icy for New York State, noted that small-
scale, gas-fired "combined heat and power"
plants now are more economical than ever.
Some businesses and apartment complexes
are beginning to install their own full-time
gas generators, cutting their dependence on
externally supplied power.
The current freeze on new projects means
that demand growth may begin to outstrip
supply growth within a few years. Thereafter
the current glut may dwindle, allowing pro-
ducers to recover pricing power. It will take
time, but they should enjoy a gilt-edged
@2015 The Economist Newspaper Ltd.
Distributed by the New York Times Syn-
higher oil prices
on its way
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