With all three facets of the energy
market-upstream, midstream and downstream-currently thriving,
some companies servicing the sector are hoping to reap the
rewards by pumping up capital expenditures.
Driven by a combination of strong demand,
inadequate production and refining capacity and geopolitical
risks, the fundamentals supporting higher oil and gas prices
are structural and likely will persist for several years,
according to Dresser-Rand Group Inc., Houston, a major supplier
of rotating equipment for the oil, gas, petrochemical and
industrial process industries.
Natural gas prices peaked at $14.994 per
million British thermal units (mmBtu) in December 2005,
according to data from the U.S. Energy Information
Administration (EIA) based on the settlement for the Henry Hub
natural gas spot contract on the New York Mercantile Exchange
While current natural gas prices are about 47
percent below that level, they have been showing relatively
small but steady gains since last August. Based on actual
working days, AMM calculated the natural gas spot
price averaged $6.137 per mmBtus in August, rising to $6.189 in
September, $7.224 in October and $7.778 in November before
easing back to $7.179 in December, but were hovering in the
$8-per-mmBtu range in January.
Crude oil futures hit the psychologically
important $100-a-barrel level on Nymex on Jan. 2 amid concerns
over supply and fears of falling U.S. stock levels. Prices had
averaged $72.36 a barrel in August, rising to $79.63 in
September, $85.66 in October and $94.63 in November, according
to the EIA data. Like natural gas, prices eased back slightly
in December to average $91.74 a barrel before entering the new
year with a bang.
With prices at these levels, it is no
surprise that companies servicing the sector might hope to get
in on the action.
In the upstream market, the number of
facilities, including floating, production, offloading and
storage vessels, is expected to increase significantly during
the next five years, while the liquefied natural gas market is
expected to double capacity in the next 10 years.
In the midstream segment, nearly 40,000 miles
of natural gas pipelines are planned for construction,
The downstream refining market has been
particularly strong in the United States in recent years due to
clean-fuel initiatives, the company said. More recently, there
has been a significant effort toward boosting refining capacity
internationally, propelled by the "mismatch of heavy sour crude
conversion and refinery utilization rates, (which) are at their
highest levels in 25 years," the company said. "The current
industry view is that refining capacity will increase by
11 million barrels per day by 2010."
Canada's largest energy services provider,
Precision Drilling Corp., Calgary, Alberta, has earmarked a
record $370 million in capital expenditures this year, up 70
percent from 2007. The bulk of the money-$260 million-is slated
for the construction of 19 new high-performance "super series"
land drilling rigs, which offer higher pumping capacity, more
versatility and better mobility than traditional rigs. They are
scheduled to be delivered over the next six to 18 months.
About 70 to 80 percent of land drilling
activity in North America is for natural gas-a market that's
feeling squeezed in Canada but is performing well in the United
States, according to Doug J. Strong, Precision Drilling's chief
"It's been tough, which is reflected in the
drop in drilling activity in Canada. But the U.S. has held up
well," he said. "Pricing goes in line with the supply of gas
and inventory levels, and U.S. inventory levels have been
riding along the five-year highs for close to two years. But
they've come off recently, which has provided a bit of optimism
in market activity because it's difficult for our customers to
replace reserves, so we're feeling positive long term."
With fewer opportunities in Canada, Precision
Drilling expects to double the number of rigs it operates south
of the border to 24 this year from 12 currently, primarily in
Colorado and Texas.
Unlike offshore rigs, which are facing a
supply problem, Strong said there's an abundance of land
drilling rigs, although not necessarily the high-performance
rigs that operate 20 to 40 percent more productively. "There's
always opportunity in the high-performance end of the market
where we operate, which ultimately lowers well costs, and we
still see opportunities in Canada and to diversify outside of