Despite controversy over its environmental impact, expect private equity to continue investing in shale energy deals in 2012, First Reserve Corporation chairman and chief executive officer William Macaulay said at an industry conference in New York this week.
“Shale is the play in this country … I think it can fuel a lot of industrial growth in this country,” Macaulay said at the Dow Jones PE Analyst Outlook conference, adding that shale investments are also becoming popular outside the natural gas industry. “Increasingly, if you’re doing oil, you’re also doing shale. It’s had a huge effect on natural gas prices in this country.”
Private equity took an active interest in US natural gas reserves over the last year, investing billions in companies that use hydraulic fracturing or “fracking” to access natural gas deposits below shale formations. The popularity of the technique, which is prominently used on large shale deposits in the northeast US and Texas, has also led fund managers to invest in companies that support the industry, from drilling components to infrastructure.
As an industry, we ought to report what we put in a frack. There are probably some things we put in a frack that you shouldn't put in a frack.
Fracking has come under fire recently over concerns that the practice may cause harm to the environment, as well as water supplies. According to Macaulay, investors should confront this controversy head-on by being upfront about fracking’s history, as well as the drilling process itself.
“There’s a big environmental [concern] that we’re reading about every day. What’s the reality? We’ve been fracking for 60 years. There are over 1 million wells in this country,” he said. “As an industry, we ought to report what we put in a frack. There are probably some things we put in a frack that you shouldn’t put in a frack.”
First Reserve specialises in energy and infrastructure investments. In October, the firm entered a joint venture with the Energy Corporation of America to buy two natural gas gathering systems in Pennsylvania’s Marcellus Shale.
Macaulay also applauded President Barack Obama, who used his State of the Union address earlier this week to highlight how his administration expects the natural gas industry to take an active role in reviving the US economy. In the speech, Obama said the US’ natural gas supply could “last America nearly 100 years” and that he expects the development of the industry to create 600,000 jobs within the next decade.
However, despite the President’s new found enthusiasm for the industry, Macaulay tempered his praise by noting that the Obama administration should have focused its energy policy on natural gas from the beginning.
“We were very pleased when the Obama administration was coming into office [in 2009]. We were invited to speak to [former National Economic Council director Larry] Summers and the transition energy group. The message we tried to deliver was that natural gas was the future,” he said. “I’m glad after three years that they’re coming around to natural gas.”