U.S. Needs to Keep Long-Term View About Crude Oil and Natural Gas, Industry Leaders Say at OSU Energy Conference

May 20, 2015

By ROD WALTON World Business Editor

Tulsa-based Williams Cos. Inc. is focused on natural gas, not crude oil, but dramatically lower prices is a common challenge for both industries, a company leader said Tuesday at the Oklahoma State University Energy Conference.

The shale revolution, through the combination of hydraulic fracturing and horizontal drilling in shale deposits deep underground, has driven U.S. drilling production to historic levels. At the same time, those volumes have conspired to put downward pressure on prices in the past year.Login requiredWe have used your information to see if you have a subscription with us. So far we have not found one. If you feel you are currently subscribed please click on the button to attempt to find your account.

“Some say we’ve created this shale revolution. Most revolutions have mixed results,” said Frank Billings, senior vice president of corporate strategic development at Williams, during his talk at the Hyatt Regency hotel in downtown Tulsa.

As a result, Saudi Arabia and other low-cost drillers in the OPEC cartel have “weaponized the price of oil against U.S. drillers.” The crude oil price collapse has led many U.S. companies, including some in Tulsa, to curtail drilling expenditures and lay off employees.

“The whole intent is to injure and impair higher-cost production,” Billings noted. But U.S. production is still high as “drillers become more efficient.”

Williams got out of the oil and gas production side when it spun off WPX Energy Inc. several years ago. The Tulsa firm, now focused on natural gas infrastructure in pipelines and processing plants, also has seen its primary commodity fall in value over the years.

The difference is that Williams believes that low prices make natural gas competitive as a feedstock for power plants and to heat homes. Williams wants to build out pipelines and delivery points to consumer demand centers, Billings added.

“The key word around our office is demand,” he said. “Demand will cure any ills from downward cycles.”

Billings stressed that the oil and gas industries need to maintain a long-term view of price cycles and not get too caught up in momentary fluctuations. He has seen many ups and downs in his 30-year career.

A slide during his talk predicted that North American industrial demand for natural gas will increase by 30 percent between now and 2030.

“We feel that the long-term focus needs to be on infrastructure build-out,” Billings said, “bringing low-cost energy to demand centers.”

Pipelines are expensive to build and face a direct competitor in railroads, which can get to “demand centers” relatively quickly and with less build-out cost. Stevan Bobb, chief marketing officer for BNSF Railway, talked about how the Fort Worth, Texas-based railroad firm has grabbed oil transportation market share during the shale revolution.

Five years ago, BNSF was moving about 59,000 barrels of oil per day on its line. It transported 775,000 BPD as of the end of 2014.

“I can say we didn’t understand that growth when we first shipped the first unit out of the Bakken Shale on New Year’s Eve 2009,” Bobb admitted. “The growth came on very fast.”

The increasing employment of BNSF and other railroads to move crude oil, in the absence of adequate pipeline takeaway capacity, has helped to revolutionize that industry, too. Energy, mostly coal but increasingly oil, makes up 29 percent of its annual loads, according to company statistics.

BNSF plans to spend about $6 billion on capital projects this year to update and expand its 32,500-mile system. The railroad was spending less than half that much five years ago.

“Investing in the right assets at the right time is part of our DNA,” Bobb said.

Safety is also a major concern with rail transport of crude oil. A BNSF train carrying 180,000 gallons of oil went off the tracks and caught fire last week in western North Dakota. Bobb said his company is proactive about safety by constantly inspecting and improving track, while also training 8,500 emergency first responders last year.

BNSF is owned by Berkshire Hathaway. BH Media Group, a subsidiary of Berkshire, owns the Tulsa World.

The OSU Energy Conference continued Tuesday with talks by Oklahoma Corporation Commissioner Dana Murphy and officials with CITGO Petroleum Corp. and the GableGotwals law firm in Tulsa. The conference will wrap up Wednesday in Oklahoma City.

Sponsors of the OSU Energy Conference include ONEOK Inc., WPX Energy, ONE Gas, The Persimmon Group, Helmerich & Payne, GrantThornton, Deloitte and Stinnett & Associates.

Rod Walton 918-581-8457


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