Showdown at the US Energy Corral?
I am surprised there has not been more reporting on what I believe promises to be a battle royal of sorts between rapidly growing US production of domestic oil and natural gas and forces that simply want to drive down use of fossil fuels significantly, getting rid of their use altogether if that was possible.
How that battle plays out will impact the US economy, our supply chains, the balance of global manufacturing competitiveness, and more. It will be a huge inflection point that I believe, without exaggeration, will have an impact felt for decades.
"Natural gas is running about $4.00 or so per million BTU (British Thermal Unit) in the US. The global price? Multiple times higher, somewhere around $12.00 per mmbtu in Europe, for example, and $15-18.00 for the equivalent liquid natural gas in most of Asia."
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Regardless of my views, I try to stay out of the politics of these and other matters, stick to the facts and analysis of them with an unbiased presentation - though that is not always easy to do, and never to everyone's satisfaction. Will do my best here to walk that path again, but will say frankly up front I am very much in favor of continued development of US oil and gas resources.
So here we go: over the last few years, new processes, largely "fracking," have led to a dramatic increase in oil and natural gas production in the US, with much more still to come.
Over the past five years, US natural gas production has risen from 52 billion cubic feet (bcf) per day to 65 bcf per day - a 25% increase. This rapid rise was driven primarily by shale gas/fracking production. By the end of the decade, natural gas production will likely reach nearly 80 bcf per day-almost 75% of which will originate from unconventional activity that includes not only shale gas but tight sands formations and coal bed methane. That would represent an increase of about 54% in production versus already strong 2007 levels, according to a recent report from researchers at IHS, led in part by noted energy industry expert Daniel Yergin.
This natural gas production boom led to prices falling to historic lows in the past couple of years - in the US only, not globally. This is very important - more on that in a second.
US oil production until just recently experienced a long period of decline. From 1970 to 2008, US crude oil production fell from 9.6 million barrels a day to just 5 mbd. Now, the same types of techniques developed for natural gas production are being used to produce oil from shale and other sources too. Such unconventional production volumes have increased from 100,000 barrels per day in 2003 to over 2 million barrels per day in 2012 - and volumes are rising rapidly. IHS estimates unconventional oil production in the US will reach almost 4.5 mbd by 2020.
It is hard to overstate the importance to the economy and the supply chain from this major change in the energy landscape.
The economics numbers flowing from this "revolution" are staggering, according to IHS. It expects that more than $5.1 trillion in capital expenditures will take place between 2012 and 2035 in the US across unconventional oil and natural gas activity, of which:
• Over $2.1 trillion in capital expenditures will take place between 2012 and 2035 in unconventional oil activity.
• Close to $3.0 trillion in capital expenditures will take place between 2012 and 2035 in unconventional natural gas activity.
These are huge numbers.
• Employment attributed to upstream unconventional oil and natural gas activity will support more than 1.7 million jobs in 2012, growing to some 2.5 million jobs in 2015, 3 million jobs in 2020, and 3.5 million jobs in 2035.
• On average, direct employment will represent about 20% of all jobs resulting from unconventional oil and natural gas activity, with the balance contributed by indirect (e.g., metal pipes) and induced (e.g., housing construction) employment.
If you are looking for a job, by the way, head to North Dakota, where there is major oil and gas production going on. Its unemployment rate is just 3.3%, the lowest in the nation.
As shown in the chart below, from the IHS report, this unconventional activity is expected to produce $416 billion in "value added" to the US economy by 2020 just from the production activities and investments alone, not including all the indirect activity. That is a huge number, and will help significantly lift overall US GDP.