HOUSTON – Investors’ growing reluctance to back big, complex projects is driving the energy industry to break up infrastructure plans into smaller pieces, potentially putting new projects and technology development into the hands of many more players, energy executives said Thursday.
Opening the door to new entrants is speeding up how quickly new and incremental technological advances are spreading through the market, a sign that the entrepreneurship of smaller market-cap companies is working out for U.S. shale development and other frontiers in oil and gas, a panel of energy experts said during the ninth annual Mayer Brown Global Energy Conference in Houston.
The “age of natural gas” has distinguished itself from eras dominated by coal and oil in that it is much more difficult to transport.
That problem is convincing industry players and their financiers that they need to develop smaller manufacturing plants, smaller gas-to-liquids facilities and smaller generation plants closer to sources of abundant gas across the U.S., said Roy Lipski, CEO of Velocys, a U.K.-based company that deploys smaller-scale gas-to-liquids units to turn remote unconventional resources into fuels.
“It’s a necessity that we go with smaller production,” Lipski said. “It’s easier and more practical to implement, it puts less strain on supply chains, and smaller projects are less subject to delays. They appeal much more to the sources of capital who are turning to large independent oil companies and saying we don’t want you to deploy such large amounts of capital in single points of risk.”
The changing tide, he said, is why the industry “by necessity is going to put these projects, these technologies, these capabilities in the hands of a much, much larger group of players.”
As for the larger projects, Lipski used the example of massively expensive Australian liquefied natural gas export facilities that faced long delays after companies encountered several unanticipated construction challenges.
“Anyone that is looking for LNG to be the savior of natural gas markets in North America needs to look at what happened in Australia,” he said. Because large, complex projects put enormous strains on local supply chains, “if you’re the second big plant planning to be built on the Gulf Coast, you know that your prices are going to be more expensive than the first one, and you may be subject to more delay pressures.”
John Westerheide, general manager of unconventional resources at GE Oil & Gas, said the entrepreneurial culture in the North American onshore business is spurring incremental advances in technology and opening up capital to fund those smaller advances.
“It’s creating shorter and shorter loops in the technology development cycle, and right now companies are bringing new solutions and testing them quickly, because each well needs to do better than the last,” Westerheide said. “It’s a very exciting space to be in right now.”
The growing amount of available technology enables small market-cap U.S. independent oil and gas producers to exploit the same developments that big integrated oil and gas companies use, said Brandon Blossman, a managing director at Tudor, Pickering, Holt & Co.
“This technology that we’re talking about resides with the service companies, not the exploration and production companies,” he said. “That means it’s for sale to anybody who wants to buy it. You can buy it incrementally and you can buy it at lower cost.”