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A tectonic shift. Emerging issues in the U.S. oil and gas industry ÁNGEL GONZÁLEZ , Dow Jones Newswires. An age of energy scarcity…. In 2000, the U.S. imported large quantities of Middle Eastern oil– which China also needed.
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A tectonic shift Emerging issues in the U.S. oil and gas industry ÁNGEL GONZÁLEZ, Dow Jones Newswires
An age of energy scarcity… • In 2000, the U.S. imported large quantities of Middle Eastern oil– which China also needed. • Natural gas production was declining fast. Building LNG terminals was a priority to import the needed gas– which China also needed. • Consumption was climbing fast– it was the age of the SUV and the McMansion. • Peak oil seemed around the corner.
Blossomed into an age of abundance. • In 2012, the U.S. is producing more oil at the highest rate in 14 years– taking markets by surprise. • Domestic natural gas production is at record heights– bringing prices to record lows. Imports are irrelevant. • Fuel demand peaked in 2007– in part because of the crisis, but also because of efficiency and biofuels. • Peak oil is not scary anymore.
What happened? • The price of oil and gas went up. • That led to a huge investment boom in all things energy– but not all of the world was open to it. • The U.S. and Canada were. • Money+entrepreneurs+technology+political stability: an oilman’s paradise.
So what does this mean? • Companies are busily creating a new energy geography • Pipeline routes are being redrawn to connect new production areas • Pipelines that used to bring imported crude to Oklahoma are being reversed • Energy production is not exotic anymore- it’s part of daily life for many Americans now
So, what does this mean? Part 2 • America will halve its reliance on Middle Eastern oil by 2020. • There are potential geopolitical impacts to all this. But they’re unclear at this point • There are also environmental concerns– what is the true cost of this energy revolution? • There are trade, currency and economic impacts too
A story of shifting trends • The first to spot one wins. • There’s a world of data available to those who are numerically inclined. • Useful sites: www.eia.gov, www.iea.org, www.opec.org • Also: www.ferc.gov • My favorite: the EIA’s data browser. http://www.eia.gov/oiaf/aeo/tablebrowser/
Trends we’re seeing • U.S. importing less and less oil– and more of what it imports comes from the neighborhood • U.S. becoming a net exporter of fuel • U.S. likely to become an exporter of natural gas • US Gulf of Mexico production took a hit from the Deepwater Horizon, but likely to raise again by the end of the decade
Trends we’re seeing • Canadian crude and U.S. crude are likely to fight for scarce pipeline capacity– until they build more pipelines. • Refining markets are changing drastically– and are bound to keep changing as new pipelines are built • Low natural gas prices are pushing drilling rigs to oil-rich areas.
II. A story of companies • Several types of companies are driving the transformation of American energy. • Integrated oil companies: the largest of the lot. ExxonMobil, Chevron, BP, Shell. They both pump the oil and refine it into fuel. Big Bucks. They want to take the U.S. boom to a global scale. • Independent oil companies: scrappy wildcatters, many of them are now big– Devon, EOG Resources, Chesapeake. They drove the first stage of the U.S. boom.
II. A story of companies • Pipeline companies: they are tasked with getting the new resources to market- for a handsome profit. Kinder Morgan, Enterprise Products Partners. • Independent refiners: until recently endangered, those well-placed are enjoying a lot of cheap U.S. crude. And others are exporting to Latin America. Valero Energy, Marathon Petroleum, HollyFrontier.
Oilfield services companies: the ones who the resource owners hire to do the actual work. The Schlumbergers, Halliburtons, Baker Hughes of the world. A plethora of non-energy businesses that are booming as a consequence of the energy revolution: railroads, barge operators, truckers, sand mines, guar farms, chemical companies like Dow Chemical. National oil companies– Asian giants like Cnooc, KNOC, Sinopec and ONGC are scouring the U.S. oilpatch for a piece of the shale game. They also want to take the boom to the rest of the planet.
III. Story of environmental transformation • The environment and health: controversies about whether drilling shale plays contaminates acquifers– especially near populated areas that weren’t used to the industry. That debate is likely to continue for years. • Controversies remain about water use– not only in the shale plays, but also in the oilsands. • Pipeline building is also controversial– remember Keystone XL. • CO2 has left the picture—for now.
IV. A story of social transformation • Social transformation: all this industrial activity brings new money, new jobs, new rivalries. A geographic shift in wealth creation to formerly poor areas in North Dakota, South Texas, rural Pennsylvania. • Parts of the Rust Belt are being revitalized as chemical companies set up facilities and steel makers enjoy cheap energy for the first time in decades.. • It’s always a boom-bust story– natural gas activity has migrated to oil regions in the past two years. • Political consequences to this– especially in an election year.
What does the future hold? • Nobody knows. That’s what makes it fun. • Crystal balls often shattered by surprises – derailing big, expensive projects and sometimes bringing companies to their knees (and great fortune to others). That makes for dramatic stories. • Keep an eye out for major technology disruptions, geopolitical events, market shifts that could change the future.
Thank you! Feel free to reach me at angel.gonzalez@dowjones.com.
