American Oil and Gas Reporter - August 2015 - 143

ConventionCoverage: Kentucky Oil & Gas Association
PLLC and a member of the KOGA Board,
discussed eminent domain and the Bluegrass Pipeline, a proposed project to carry
natural gas liquids from the Marcellus
and Utica plays to the Gulf Coast. In
May, he said, a Kentucky appeals court

blocked the use of eminent domain for
its route.
The key factors leading to the decision,
he assessed, were that the pipeline planned
to run through the central part of the
state, an area with no oil or gas production;

it involved NGLs that were not produced
or used in Kentucky; and it came at a
time when environmental groups were
particularly strong.
❒

U.S. Gas Price, Exports Set For Revival
LEXINGTON, KY.-The revolution
in oil and gas production under way in
U.S. shale basins has caused a tectonic
shift in the global energy trade, Brian
Habacivch, a senior vice president with
Fellon-McCord, told the Kentucky Oil
& Gas Association's annual convention,
held July 14-16. He predicted those impacts would reverberate for generations
to come.
The keynote speaker at the convention's
membership luncheon, Habacivch pointed
to prices and exports as some of the
forces that shaped hydrocarbon markets.
Low prices beget higher prices, and
today's natural gas lows are increasing
demand, he said. Operators are cutting
back drilling and, he observed, retirements
of nuclear- and coal-fired plants are
adding to the increased call for natural
gas. Habacivch asserted the downturn in
pricing had run out of room.
The United States set a record for
coal-fired plant retirements in June, and
those closings are likely to continue, he
projected, adding that natural gas is the
logical substitute. Following those coal
plants into retirement are the nation's
nuclear-powered generating facilities,

U.S. shale production is rewriting the
global energy book, and those changes
are likely to reverberate for decades to
come, poses Brian Habacivch, a senior
vice president with Fellon-McCord. He
was the luncheon speaker for the Kentucky
Oil & Gas Association's annual convention,
held July 14-16 in Lexington, Ky.

which Habacivch pointed out also would
increase natural gas demand.
Another major driver is liquefied natural gas exports, he said. "The United
States has a big future because it still can
produce a lot more natural gas than it is
producing now. We need to capitalize it.
Like any rich, powerful country would
do, we will take our raw resources, make
them better, and sell them to someone at
a much higher price. That is what we are
going to do, and that is what people in
this room should be cheering for," he
posed.
It is conceivable that the United States
will go from no market share in the global
LNG trade to 20-25 percent, Habacivch
predicted. With 74 billion cubic feet a
day of domestic production, the country
only needs to export 10 percent of that to
rebalance its gas market, he offered,
adding that gas exports to Mexico are
growing more important as its constitutional reforms open its energy sector to
foreign involvement.
Natural gas demand in the U.S. manufacturing sector is likely to continue,
especially in the petrochemicals, specialty
chemicals and refining industries, he forecast. "We are a refining superpower,"
Habacivch asserted. "Nobody refines
more product than the United States, and
no one can touch us when it comes to
costs. The future belongs to us. No one
can touch our feedstock price, capital
costs, our markets or our marketing expertise."
As recently as 10 years ago, energy
markets could rebalance only by reducing
demand, Habacivch recalled. U.S. shale
production has changed that dynamic, he
said, relying instead on increased supplies
typically available within six months to
reset the pricing equation.
Shale's Impact
The global oil market, held in balance
for decades by the Organization of Petroleum Exporting Counties, has been
upended by the U.S. shale revolution,

asserted Matt Smith, commodity research
director for Clipper Data. However, a
few years ago, Saudi Arabia realized it
could no longer fight U.S. production
advances and opted to gain market share
by oversupplying oil.
"OPEC now is 2 million barrels a
day in oversupply," Smith said. "U.S.
oil production was at 5 MMbbl/d. It then
went up to 9 MMbb/d, and it keeps going
up. Mexico will be the success story
during the next half decade, thanks to its
energy reforms. We should see Mexico
ramping up. But for now, all the supply
growth is coming from the United States
and Canada."
In June, the U.S. rig count had dropped
60 percent from October's 1,600 rigs,
but he pointed out production had only
begun to fall.
"We are seeing a shift toward greater
productivity. The Permian Basin has seen
a 50 percent increase in productivity in
each well. The key thing to remember is
that 70 percent of production comes from
30 percent of the wells," he posed. "When
oil is $100 a barrel, it does not matter
which part of the shale play operators

Matt Smith, commodity research director
for Clipper Data, tells the Kentucky Oil
& Gas Association that Saudi Arabia,
seeking to blunt the impacts of increasing
U.S. shale production, is seeking to gain
global market share by oversupplying
oil.

AUGUST 2015 143
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