America Can Become The Global Energy Powerhouse
The Shale revolution has put America on the path to becoming a global Crude Oil and Nat Gas powerhouse. The ability to find more buyers as US capacity increases at a competitive price will dictate how dominant the US will become as an energy power in Y 2017 and beyond.
For decades, the US depended on the world for energy.
Today, however, the US becoming a global supplier of Crude Oil and Nat Gas in its own right. This year, for the 1st time ever, the US started turning Nat Gas from prolific shale formations into LGN (liquefied natural gas) and sending it overseas. In Y 2017, the nation may be exporting more of the heating fuel than it imports for the 1st year since the 1950’s.
Refurbished pipelines and terminals will come online next year to help unleash the US shale gas boom into the world.
It remains costly to ship US LGN to major consumers in Europe and Asia, and US President Elect Donald Trump’s trade priorities could make US LNG more expensive than supplies from other producers around the world.
Only 10 years ago, Nat Gas supplies from conventional wells were drying up.
Major energy companies such as Exxon Mobil Corp.(NYSE:XOM), BP Plc (NYSE:BP) and Chevron Corp (NYSE:CVX). were planning to spend billions on LGN import terminals to offset the decline.
Now, the technique known as hydraulic fracturing, or fracking, changed everything for Nat Gas drillers, allowing them to pull the fuel out of layers of shale rock triggering the US shale revolution.
America’s frackers are pulling 18-B cubic feet of gas per day from the Marcellus Shale formation in the eastern USA, more than any other domestic shale deposit. But the US pipeline system was designed only to move Nar Gas from the Gulf Coast to cities in the Northeast, not the reverse.
In order to get the eastern US Nat Gas to the Gulf Coast, where export terminals are being built to send the fuel overseas, pipelines are being re-engineered to flow South. Thousands of miles of bi-directional pipelines are slated to be online in Y 2017.
Cheniere Energy Inc. (NYSE:LNG) and others have contracts with several bi-directional pipelines to receive fracked Nat Gas from the Marcellus Shale.
Cheniere won approval from US regulators to export LNG in Y 2010, years ahead of competitors. Cheniere’s Sabine Pass terminal is currently the only operational export terminal in the lower 48 states. That is about to change, as 4 more terminals are forecast to become operational by Y 2018 and at least 12 more have been approved or are pending government certification.
About 40 shipments of LNG have been exported from Cheniere’s Sabine Pass terminal in Louisiana, which began operations in February 2016. Most of the cargoes are being delivered to South America and Mexico. Once all 5 terminals are fully operational, US energy producers would have the capacity to export 10-B cubic feet of LNG daily, up from about 1-B in Y 2016.
It’s less clear who will purchase all this US Nat Gas.
The Department of Energy (DOE) is reviewing more than 24 applications from companies seeking to export up to 36-B cubic feet a day, or nearly 50% of US production, to countries that do not have trade agreements with the US. While markets in South America are poised to absorb some of this supply, increased competition abroad could make it tough for US Nat Gas to compete farther from home.
Price is a concern.
WTI Crude Oil (NYMEX) USD/bbl.51.29-0.39-0.75% Jan 2017 $USO
Nat Gas (NYMEX) USD/MMBtu 3.49+0.05 Jan 2017 $UNG
Although US Nat Gas at the benchmark Henry Hub in Louisiana dropped to historic lows earlier this year, transportation costs make it cheaper for buyers in Japan and South Korea to import the fuel from Australia and Qatar.
The Trump Administration threatens to put an end to US involvement in the North American Free Trade Agreement (NAFTA), a step that could make US exports to Mexico costlier.
So, unless we see another Nat Gas price drop, future markets for US LNG could be limited.
|HeffX-LTN Analysis for USO:||Overall||Short||Intermediate||Long|
|Neutral (0.03)||Neutral (-0.10)||Bullish (0.31)||Neutral (-0.11)|
|HeffX-LTN Analysis for UNG:||Overall||Short||Intermediate||Long|
|Neutral (0.18)||Neutral (0.12)||Bullish (0.29)||Neutral (0.14)|
Have a terrific week.