America's Newfound Energy
By LIAM DENNING
For all the talk of Uncle Sam being past his prime, he's surprisingly sprightly when it comes to one thing: energy production.
Amazingly, Rystad Energy, a Norwegian consultancy that analyzes field data, foresees U.S. combined oil and gas output actually surpassing its prior 1972 peak in the early 2020s. Long-term declines in natural gas and oil output have reversed in recent years. On another front, coal exports in the year ended in March topped 90 million tons, up 42% and the highest level since the mid-1990s.
The coal industry is restructuring to take advantage of this. Big miners such as Arch Coal have led consolidation in the sector, aiming to control more metallurgical coal. This higher value coal, used in steel-making, is in great demand in China.
U.S. demand for coal has fallen this past decade and remains under pressure as power plant emissions standards tighten. However, demand elsewhere is expected to keep growing strongly. Recent floods in Australia, disrupting supplies from the world's biggest coal exporter, have encouraged buyers to diversify their sources. Apart from U.S. miners, that is good news for railroad operators such as CSX Corp. ferrying cargoes to and from ports.
With regards to gas, the current controversy about hydraulic fracturing of shale gas will prompt tougher regulation. But gas's combination of cleaner emissions relative to coal and low cost makes a broad ban highly unlikely. Last week, New York state's top environmental official recommended allowing hydraulic fracturing to go ahead, albeit with some restrictions.
Huge new shale gas reserves, creating excess supply, have kept U.S. prices stuck at less than half the level being paid in Europe and Asia. Owners of largely idle gas import terminals such as Cheniere Energy want to build export facilities alongside them to let excess supply escape the U.S. As and when this happens, it should serve to both raise U.S. gas prices to the benefit of producers and further globalize gas flows. That will put pressure on producers that historically enjoyed dominance in captive markets, such as Russia's Gazprom.
Cheaper gas-fired electricity, meanwhile, should displace more carbon-intensive coal-fired plants. It should also present a significant challenge to more expensive, less reliable low carbon technologies such as solar power. And it provides U.S. manufacturing with a cost advantage relative to other regions: Witness the revival of chemicals production by the likes of Dow Chemical utilizing cheaper natural gas liquids.
Similar to what's happened with shale gas, shale oil output from areas like the Bakken formation stretching beneath North Dakota and Montana is rising quickly. Rystad expects U.S. oil production, which bottomed out at 5.4 million barrels per day in 2008, to reach 7.4 million barrels per day by the end of the decade.
This won't win the U.S. independence from oil imports. But it is good news for U.S. refiners in the Midwest like newly listed Marathon Petroleum Corp. They have been enjoying the benefits of refining North American crude oils like West Texas Intermediate trading at discounts to foreign grades like Brent because, similar to gas, there isn't enough pipeline capacity to get it quickly to world markets. Extra domestic oil should bolster this trend until new pipelines are built.
Shifts in America's relative energy dependence tend to have far-reaching consequences: It's no coincidence that U.S. oil output peaked in the early 1970s, just before prices went haywire. The resurgence in Uncle Sam's energy output will also serve to shake up companies, markets and their investors.
Amazingly, Rystad Energy, a Norwegian consultancy that analyzes field data, foresees U.S. combined oil and gas output actually surpassing its prior 1972 peak in the early 2020s. Long-term declines in natural gas and oil output have reversed in recent years. On another front, coal exports in the year ended in March topped 90 million tons, up 42% and the highest level since the mid-1990s.
Associated Press
Dow Chemical has been utilizing cheaper natural gas liquids. Above, a Dow Chemical industrial site in Midland, Mich., pictured in 2008.
The coal industry is restructuring to take advantage of this. Big miners such as Arch Coal have led consolidation in the sector, aiming to control more metallurgical coal. This higher value coal, used in steel-making, is in great demand in China.
U.S. demand for coal has fallen this past decade and remains under pressure as power plant emissions standards tighten. However, demand elsewhere is expected to keep growing strongly. Recent floods in Australia, disrupting supplies from the world's biggest coal exporter, have encouraged buyers to diversify their sources. Apart from U.S. miners, that is good news for railroad operators such as CSX Corp. ferrying cargoes to and from ports.
With regards to gas, the current controversy about hydraulic fracturing of shale gas will prompt tougher regulation. But gas's combination of cleaner emissions relative to coal and low cost makes a broad ban highly unlikely. Last week, New York state's top environmental official recommended allowing hydraulic fracturing to go ahead, albeit with some restrictions.
Huge new shale gas reserves, creating excess supply, have kept U.S. prices stuck at less than half the level being paid in Europe and Asia. Owners of largely idle gas import terminals such as Cheniere Energy want to build export facilities alongside them to let excess supply escape the U.S. As and when this happens, it should serve to both raise U.S. gas prices to the benefit of producers and further globalize gas flows. That will put pressure on producers that historically enjoyed dominance in captive markets, such as Russia's Gazprom.
Cheaper gas-fired electricity, meanwhile, should displace more carbon-intensive coal-fired plants. It should also present a significant challenge to more expensive, less reliable low carbon technologies such as solar power. And it provides U.S. manufacturing with a cost advantage relative to other regions: Witness the revival of chemicals production by the likes of Dow Chemical utilizing cheaper natural gas liquids.
Similar to what's happened with shale gas, shale oil output from areas like the Bakken formation stretching beneath North Dakota and Montana is rising quickly. Rystad expects U.S. oil production, which bottomed out at 5.4 million barrels per day in 2008, to reach 7.4 million barrels per day by the end of the decade.
This won't win the U.S. independence from oil imports. But it is good news for U.S. refiners in the Midwest like newly listed Marathon Petroleum Corp. They have been enjoying the benefits of refining North American crude oils like West Texas Intermediate trading at discounts to foreign grades like Brent because, similar to gas, there isn't enough pipeline capacity to get it quickly to world markets. Extra domestic oil should bolster this trend until new pipelines are built.
Shifts in America's relative energy dependence tend to have far-reaching consequences: It's no coincidence that U.S. oil output peaked in the early 1970s, just before prices went haywire. The resurgence in Uncle Sam's energy output will also serve to shake up companies, markets and their investors.
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