From the pages of
Sublette Examiner
Volume 8, Number 48 - February 19, 2009
brought to you online by Pinedale Online

Gas prices fall; local economy dips

by Derek Farr

The island of immunity to nationwide and worldwide economic factors that Sublette County has enjoyed is being battered by a storm of decreasing demand – and decreasing gas prices.

It wasn’t that long ago when skyrocketing gas prices were projected to hit Wyoming families like a tsunami.

“The problem is, we can’t bring the price down,” Gov. Dave Freudenthal said in September of a then-projected winter gas-price spike.

Wyoming Public Services Commission Deputy Chairman Steve Oxley concurred, saying, “We may see some of the largest increases in natural gas prices in years.”

At the time, Sublette residents braced for an expensive winter as the state lobbied lower income residents to sign up for the “underutilized” Energy Assistance Program.

But all that prognosticating was wrong; instead of spiking, gas prices fell precipitously.

Last August gas sold at almost $9 per thousand cubic feet (mcf) at the Opal Hub (the Opal Hub is a major gas market center in southwest Wyoming that services markets in California, Arizona and the Pacific Northwest.) Usually natural gas prices increase substantially in the winter as demand increases but this year things were different.

By October the price fell to $3.50 mcf.

The drop was a great relief to many household pocketbooks bracing for unprecedented heating bills, but for energy industry workers the drop has been much less welcome.

Essentially the value of Sublette County’s gas fell by almost two-thirds in two months and that prompted energy companies to respond with a production slowdown.

Shell went from eight rigs operating on the Pinedale Anticline to six.

“Our decision to reduce rigs is directly related to gas prices and economic conditions,” said Shell spokesperson Darci Sinclair. “We’ll resume pace as the price and economic conditions warrant.”

Sinclair said one of the rigs was moved to Louisiana but she did not know the reasons behind the redeployment, nor would she speculate on future reductions.

She says even with the reductions, Shell considers Pinedale to be a “generational resource” and that the company plans on being here for a long time.

She said Shell anticipates the development stage to last 15-20 years while the producing well life is expected to last 30-50 years.

While the number of contracted workers will drop between the development and production phase, Sinclair said the current slowdown is purely the product of global economic conditions.

Those conditions precipitated a drop in rigs, which translated into a fewer tasks for energy industry workers. Sinclair estimated Shell employs 70 workers in the Upper Green River Valley. She did not know how many contracted workers it uses saying the number varies. She also did not know if that number had gone up or down.

One of the companies Shell contracts is KS Industries (KSI).

From its local headquarters in Boulder, it employs about 200 people and Operations Manager Bret Kingsbury wants it to remain that way.

“We have yet to have a number decrease for several reasons,” he explained, saying because KSI has prepared for the slowdown and because “we tend to run very lean as it is,” that has helped the company “make sure we don’t outrun our headlights.”

Kingsbury said KSI is keeping its workforce busy by shuffling people around large projects that were budgeted last year.

But the multi-state company hasn’t been impervious to the economic downturn.

Kingsbury said due to the drop in oil prices “we’ve had some pretty significant cuts in our California operations,” adding that the cuts have been from the top down.

“We are currently looking at restructuring some corporation overhead in our corporate offices to make up for those deficiencies,” he said.

This is the second downturn in Kingsbury’s career and he says this one is particularly sinister.

He explained that most energy industry downturns are complemented by an upsurge in housing or manufacturing because lower energy prices free up capital.

But in this downturn, all sectors are suffering.

“We kind of got hit with a double whammy,” Kingsbury said.

That double whammy has reduced energy demand across the board, which has reduced demand for energy workers.

And that lack of demand is drawing down energy workers’ incomes as the days of orbital wages and lucrative bonuses are gone – for now.

“If you are new to the industry in the last five years, you wouldn’t be familiar with the cycles of this industry,” Kingsbury said. “It’s a eight- to 10-year cycle.”

It’s those young, new energy workers accustomed to large paychecks who will struggle with austerity in the current climate, according to Kingsbury.

“Some of these guys get so debt-heavy,” he said. “It’s time to look at that spending on new trucks and snowmachines and it’s tough to tell a young guy that.”

Kingsbury says he advises younger workers to save for a rainy day.

“Do they listen? It’s tough to say.”

He said KSI is cautiously optimistic about the future and the prospects of a light at the end of a dark economic tunnel.

“With the development in the Jonah and Anticline, there is too much at stake (for the energy companies) to just pull out,” he said. “We can all hope and pray that it’s not very long before we swing back up.”

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