Expert says energy not at bottom

The economic slowdown that hit the nation late last year and the Grand Valley this year will linger though 2009, frustrating hopes for a quick recovery, an energy-industry observer said.

Data he collected in the last three weeks suggest “we’re very, very close to the bottom” of the slowdown, Carter Mathies of Arista Midstream Services said to about 40 people at the monthly energy update of the Grand Junction Area Chamber of Commerce. “We’re catching up to how serious this recession has been in the rest of the country.”

Next year, the Piceance Basin rig count could be up as much as 25 percent, but that would come only after what has been a precipitous drop.

Twenty-six rigs are now operating in the Piceance Basin, down from 102 rigs a year ago, and the basin remains the one with the steepest drop in rig count in the United States.

The typical precursors of growth in the drilling industry, such as calls from drilling companies to any of the roughly 30 small businesses that service every rig, simply aren’t happening.

“I’m not hearing any of that talk yet,” Mathies said.

Energy-industry service companies can look, at most, to get 60 or 70 cents for the same jobs that commanded $1 a year ago, he said, as energy companies deal with investment reductions, he said.

Mathies bases rig counts and forecasts on what he said is often proprietary information from major energy companies given to him on the condition he not reveal the identity of the source.

Budget writers in government and private business need to look beyond mere trend projections to anticipate what will happen with the energy industry, he said.

One unanticipated roadblock to recovery could be the importation of liquid natural gas to coastal U.S. markets. Imported liquefied natural gas delivered close to markets could weaken demand for domestic natural gas markets, especially gas produced from fields in the West, such as the Piceance and Uinta basins of western Colorado and eastern Utah, Mathies said.

About $30 billion worth of new plants dedicated to producing liquefied natural gas have just gone or are about to go online in locations around the world, Mathies said.

More readily available than domestic sources, liquefied natural gas could fire the engine of economic recovery, Mathies said.

It might be better under those circumstances to see the global recovery begin in Asia and India, allowing those economies to recover on the strength of liquefied natural gas, clearing an opening for domestic natural gas in U.S. markets, Mathies said.

The economic stakes for drilling are high. About 50 people are directly employed on each rig, and it costs about $50 million a year to operate a single rig in the Piceance Basin.

The cost-cutting that already has taken place in businesses tied to the energy industry has been “relentless and ferocious,” he said, and the tale is far from over.

Firms have cut costs by reducing wages, cutting benefits and holding off on capital spending and, he said, “There is some more attrition to come.”


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