More upbeat energy outlook bodes well for real estate

Mike Foster
Mike Foster

People often ask me why a commercial real estate agent takes such an active interest in energy economics.

My most direct response is to cite empirical data correlating local energy exploration and production activity with industrial real estate activity over the last 10 years. From 2005 through 2009, when drilling rig counts increased in the Piceance Basin in Western Colorado, 48 industrial buildings with a total of nearly 675,000 square feet were constructed in Mesa County. That compares with nine buildings with a total of about 236,000 square feet constructed between 2010 through 2014, when the rig count was down.

Given the connection between energy development and commercial real estate, I remain cautiously optimistic about the recovery of both in the region.

This optimism is based in part on recent developments in the Jordan Cove liquid natural gas (LNG) export terminal proposed for Coos Bay, Oregon and under development by Veresen, a Canadian energy company.

The Jordan Cove project is designed to handle 1.5 billion cubic feet of natural gas a day from the Opal Hub in Wyoming and AECO HUB in Canada for shipment to Pacific rim countries.
A final investment decision in the project is scheduled for the second half of this year with a completion date during the second quarter of 2018.

Jordan Cove would be connected to the Opal Hub and Piceance Basin through the Ruby Pipeline, half owned by Veresen, as well as a proposed Pacific Connector Pipeline jointly constructed and owned by Veresen and Williams and connected to the Ruby at the Malin Hub in Oregon.

TransCanada’s  2.5 billion cubic feet a day Gas Transmission Northwest would provide another source of natural gas for Jordan Cove. Once completed, the terminal could handle more than 37 percent of the combined capacity of the two pipelines.

Given recent changes in the price of crude oil, some analysts have raised doubts about the viability of U.S. liquid natural gas exports to Asia.

Asian LNG pricing historically has been linked to crude oil. Consequently, Asian spot prices have decreased significantly from February 2014 highs. But other analysts have pointed out that LNG contracts are long-term arrangements, and long-term trends point to the U.S. as a reliable and competitive source of natural gas for Asian customers.

Furthermore, Jordan Cove LNG would be priced to Asian consumers under a tolling model that offers them the opportunity to decide the source, price and terms of the gas, including potential investment in upstream production in the Piceance Basin.