GPA ’16: Historic trade association changes name to GPA Midstream
By Adrienne Blume
Executive Editor
NEW ORLEANS -- At the April 11 general session of the Gas Processors Association (GPA) Annual Meeting at the Hilton Riverside, GPA President and CEO Mark Sutton acknowledged that it is a difficult time for the industry, and thanked attendees for coming.
GPA chairman John Mollenkopf, also of MarkWest Energy Partners, delivered opening remarks and also presented service and safety awards. Mollenkopf acknowledged that the industry is facing a challenging pricing environment, with oil, gas and NGL prices under stress.
"It is possible that NGL prices have bottomed out, but they'll remain volatile for a while," Mollenkopf said. One bright spot—"what's kept NGL prices from dipping even more"—is US export opportunities for NGLs.
GPA name and branding change. Mollenkopf and Sutton also announced a name and logo change for the GPA. As the voice of the midstream industry, the Association will now be known as the GPA Midstream Association. The GPA Midstream Association will not use an acronym, but will keep its slogan, "Where midstream means business."
"Plain and simple, we're no longer made up of only 'gas processors' and, in reality, that's been the case for several years now," Sutton said. "Our membership today represents every aspect of the midstream industry, and it's time that we make that claim."
The Gas Processors Suppliers Association (GPSA) is also considering a name change to align itself with the GPA Association's new branding.
What's happening with oil and gas prices? Next, Dr. Loren Scott, president of economic consulting firm Loren C. Scott & Associates, delivered an opening keynote speech punctuated with many comedic moments. It was his third time addressing the GPA at the Annual Meeting.
Scott noted that each US shale play is different, and that tailored production technologies are not easily transferrable. Production has generally been rising at these plays in recent years. For example, the Bakken play in North Dakota measured a 120-fold increase in production between 2003 and 2015.
As of last year, North Dakota was just 100 Mbpd away from passing Louisiana as the US' number-two shale oil producer, Scott said.
US shale plays are also very different in terms of breakeven average oil prices. As of mid-2014, the breakeven price in Louisiana's Tuscaloosa shale was $92/bbl—the highest in the nation. The breakeven price in the Monterey shale in California is $36/bbl, the lowest, while the breakeven Bakken price is pegged at $50/bbl. More output per well is due primarily to technology advancements, Scott said.
He next moved to the question of why oil prices have declined. Scott discussed the history of Saudi Arabia's moves to enforce discipline within the cartel, as seen in the early 1980s. This time around, however, the oil price decline appears to be largely due to Saudi Arabia's desire to maintain its market share.
The OPEC kingpin's moves to cut into US and international market shares—what Scott called "killing the edges" of non-OPEC oil production, especially in US shale plays—has forced down the rig count in the US by 70%.
Constricted budgets. The massive drop in oil and gas prices has forced oil and gas majors to severely tighten their budgets and trim their workforces. For example, BP has reduced capital expenditures (CAPEX) from $26 B to $17 B and cut 7,000 jobs, while Shell reduced its CAPEX and operating expenditures (OPEX) by $12.5 B from 2014 and trimmed 10,000 jobs. Meanwhile, Chevron has cut spending by $3.7 B and reduced its workforce by 7,000, and ExxonMobil has reduced its CAPEX to $23.2 B.
Scott next asked: Where are oil prices going? Forecasting oil prices is, and will continue to be, difficult in the years ahead, he said. The market side is showing futures in contango. Meanwhile, Credit Suisse sees the demand side in OECD and emerging markets going up in 2016 and 2017, for a total demand increase.
Saudi Arabia's moves to retain control of the oil market are causing its cash reserve to drop fast, Scott said. At the end of 2014, Saudi Arabia had $732 B in cash; this fell to $628 B by the end of 2015. The country has also enforced internal spending cuts of 15% in 2014 and 14% in 2015.
Iran is the supply-side wild card for OPEC and for the world, Scott said. The country has an ambitious goal of boosting production from 3.1 MMbpd to 5.7 MMbpd with the lifting of sanctions.
However, the question remains to be seen if the country can expand in a low-oil-price environment, especially with many pipelines over 40 years old and a lack of technical production expertise.
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