America’s Energy Outlook Is Fracking Great, For Now

On Tuesday the Winston & Strawn law firm rented out the main hall of Houston’s River Oaks Country Club and brought in some smart guys to provide perspective for a cocktail-hour discussion on the topic: U.S. Energy Outlook. The panel consisted of T. Boone Pickens, former Houston Mayor Bill White and Dan Pickering of investment banking firm Tudor, Pickering & Holt.

Their consensus: the U.S. energy outlook is great. Really fracking great. And that means great things for the rest of the U.S. economy as well — as long as oil prices don’t get too low.

It’s not news that America is undergoing an oil and gas boom. Or that the boom has been brought to us by the dedicated efforts of dozens of independent oil companies working to perfect the one-two punch of horizontal drilling and hydraulic fracturing.

What is news is that the boom is showing no signs of slowing down. Ten years into the shale drilling revolution, oil and gas companies have proven that this is “the real deal,” says Pickering. And as drilling expands it will continue to “the next big thing” for another 20 years.

Pickens marveled that despite oil prices surging threefold over the past decade, “The United States is the only place that has added production.”

Yes the production growth has been shocking. America’s crude oil output first peaked in 1970 at 10 million barrels per day. The nadir was in 2008, when oil hit a record high $147 per barrel amid sadsack U.S. output of 5 million bpd. Since then the surge has been asymptotal, with output topping 8.5 million bpd in June. If oil prices stay strong there is little doubt that we will hit a new record in 2015.

The growth in natural gas output has been just as stunning. This year total gas withdrawals will approach 31 trillion cubic feet, up 32% since 2005.

And yet the reality of this revolution hasn’t yet been fully appreciated even by the economists whose job it is to appreciate it. Yesterday Thomas Tunstall at the University of Texas at San Antonio published a report stating his findings that the economic impact of the Eagle Ford shale of south Texas was more than $87 billion in 2013. Just 18 months ago Tunstall had figured that level wouldn’t be achieved until 2022.

Pickens in the office. With Murdock. (Photo by Michael Thad Carter for Forbes, January 2014)

Driving those revisions is the realization that with all this oil and gas is coming massive investments in petrochemical plants and pipelines and roads and railroads and housing for workers.

“Capital is mobilizing. Industry is putting a lot of money into the ground,” says Bill White, now chairman of the Houston office of Lazard, and former CEO of Houston oil and gas service company Wedge Group. “Now is a good time to be pipeline welder or to be Trinity Industries,” which makes new rail cars to carry oil.

Pickering, who got his start working in Alaska for Arco, had a number to put on it: over the next 20 years more than $600 billion will be invested in oil and gas infrastructure like pipelines. And to think that’s just a small fraction of what will be spent on drilling and fracking.

via America’s Energy Outlook Is Fracking Great, For Now.