Letter from the President - March 2012



HGS President's Column  March 2012


by Steve Earle



Before I get into the main topic for this month, I want to point out that the 2012 Oil History Symposium will be held here in Houston on March 8, 9, and 10. Put on by the Petroleum History Institute and organized by HGS member Jeff Spencer, this will bea wonderful opportunity to get back to our roots. There will be a full day of talks on Friday, March 9, which will feature a number of old oil fields of the Gulf Coast. Special thanks to the Hess Corporation for use of Hess Tower as the venue. It should be well worth your time to attend this. There is more information elsewhere in this HGS Bulletin.


As I sit down to write this column, it is the end of the first week of 2012. West Texas Intermediate Cushing Spot closed the week at$101.56/barrel of oil and Henry Hub Spot closed at $2.87/mmbtu for natural gas. This is an astonishing 35:1 ratio as opposed to the 6:1energy equivalence ratio. Such a large differential is a market inefficiency that can and most certainly will be used to someone's advantage. That advantage will be shared between the companies that can exploit this differential and the consumer.

With natural gas prices down around $3/mcf, one has to wonder if any of the dry gas unconventional plays can be economic. Certainly we saw that companies adjusted their development plans last year. The challenge as always is to control costs yet continue to operate in a safe and environmentally responsible manner. The good news is that oil prices are strong and drilling in the liquids rich trends was up substantially as a result. Right now there are parts of the country that, without the economic stimulus being provided by oil and gas activity, would really be hurting. The energy sector is such a critical part of the .S. and world economies; it supplies the energy that keeps the heels turning, provides good jobs to people with a broad range f skills, as well as significant associated activities. It would be nice f politicians and the general public showed a bit more appreciation for our contributions. Shell plans to build a cracking nit somewhere in Appalachia using Marcellus gas and the unions re ecstatic. It's a start.


There has been much made of the idea that oil and gas prices are now permanently severed. If we have learned nothing else, we should believe that nothing is permanent. It will, however, take time for the market to make the adjustments that will bring prices back into closer alignment — apparently quite a lot of time. One obvious and much-touted way to increase demand for natural gas is to use it more in the transportation sector. I suggest here that for those who like this idea, and there is much to recommend it, and the EPA may actually be your strongest ally. Big cities like Houston will probably never bring themselves into compliance with clean air standards as long as

we must use oil-burning private automobiles as our primary mode of transportation.

I submit that it will be easier to change the oil-burning part of this than the private part. This assumes of course that the EPA doesn't kill natural gas on the supply side by outlawing hydraulic fracturing. And while there is no basis in scientific facts to ban fracking, we all know that too often facts have little relevance when politics becomes involved.

By the time you read this, we'll be heading out of the darkest part of the winter heating season; and can see where natural gas prices and trends look like. For purely selfish reasons, I'm hoping for prices closer to $4/mcf.

Anyway, let's have a little fun! Send me your best guess of what the Henry Hub Spot price for natural gas as reported by Bloomberg will be at close on May 4. Entries will be accepted at steve.hgseditor@gmail.com until March 31. Only one guess per person is allowed. The person who submits the closest value will be my guest at your choice of either the May HGS General Luncheon or Dinner Meeting;. In the event of a tie, the first entry received wins. Good luck!


Steve Earle
Thursday, March 1, 2012
From the President