You guys keep coming back, so it seems we must be
doing something right! In all
seriousness, thank you for returning to our weekly blog series on US Natural
Gas Exports. We hope that you have found
the past two weeks not only informative but also exciting as we discuss the
ramifications of our countries shift towards energy independence. At this point, after reading the blogs from
my colleagues Nate and Chris, we should all be familiar with the fact that
natural gas production, spurred by the Shale Revolution (sick of that term yet)
in the US is the catalyst for this shift.
This week we will continue to talk about just what we are doing with all
this gas, specifically as it relates to our neighbors in the north (Canada) and
the south (Mexico). Furthermore, we will
touch briefly on how exporting not only to our immediate neighbors but to
countries around the world (think back to Chris’ blog from last week) may play
out on the world stage.
Sharing Means Caring, Being a Good Neighbor
Let’s take a step for a second and have a look at
two different maps that will help to ensure that all of our readers are one the
same page as to where this gas is coming from.
Nate started our series by talking about the “U.S Shale Revolution,” but
where is this magical shale revolution happening? As we haven’t shown this before, it is so
nice of our friends at the EIA to have a map ready to go that shows all of us
where this gas is being extracted from.
It’s clear we are producing a lot of natural gas and
I highly encourage our readers to visit the EIA at www.eia.gov if anyone wishes to learn more about any of these specific shale
formations.
So we know we are producing a lot of gas, which
leads to the obvious next question. How
do we transfer it from point A to point B?
The map below shows the vast network of pipelines that run throughout
the U.S. Again, for readers interested
in furthering their education, the below map is interactive and can be accessed
here: https://www.eia.gov/state/maps.php. The + symbol along our northern and southern
borders are ‘natural gas pipeline border crossing’ zones, and there are a lot
of them.
I want to reach back to a few comments from enquiring
reader Trey from week 1 and see if we can clear up a few points. The U.S does indeed already export natural
gas and has been doing so for quite some time, and yes, we also import natural
gas. For example, most of Canada’s gas
producing regions lay far to the west: think of British Columbia, Alberta, and
Saskatchewan. However, the majority of
the Canadian population leaves in the eastern areas where the major cities
are. When we refer back to the map
above, one can see how it would be faster and cheaper for Canada to import gas
from let us say the Marcellus formation in western Pennsylvania then it would
to be to ship the gas through pipelines clear across their country. The same logic works in reverse. The dense
pipeline network of the U.S is sparser in the western part of the country. Through trade with Canada, we import the
nearby northern natural gas and use it to help service the needs of that
geographical region. Our natural gas
trade balances with Canada have appeared to reach a pretty static state, as
evidenced by the six years of import / export data provided by the EIA below.
So it appears to be business as usual with our
pipeline transportation of gas to and from Canada, and hopefully that story
helped clear up questions our readers may have had. So then, where are we increasing our pipeline
exports?? Hmmmmm……. Ah yes!
We / I almost forgot about our neighbors south of the border, and that
would have been an epic omission to our tale.
We now add a row for Mexico to the provided pipeline
export data and we see the following.
Wow! A nearly
200% increase in pipeline exports to Mexico over a 5 period which now account
for 66% of all pipeline exports, and both those estimates are expected to grow. On the heels of massive energy reforms that
began in 2013, Mexico has shifted from its reliance on oil to the cleaner burning
natural gas as the country looks to rebuild its infrastructure and
industry. Again, this is good business
for everyone involved. It is simple
supply side economics. Mexico has demand greater than its domestic supply, and
the U.S has supply greater than its demand.
Let’s see what some experts have to say about the finance of this
arrangement.
With little evidence to show exports are going to in
any way hurt our goal of energy independence or energy security, we say keep
those faucets open and continue to be a good neighbor as it will be beneficial
to everyone involved.
Geopolitical Ramifications
Chris talked last week about LNG exports and exactly
what they are and how the process works, so I will skip getting us back into
the weeds on that one. What we will
focus on here is the ramifications of the US becoming a supplier of natural gas
to companies and countries on the global scale.
One of the arguments that we here most often is that
the US can be a “white knight” to its allies in Asia and Eastern Europe who
rely heavily (solely) on the Russian behemoth Gazprom to fulfill their natural
gas demands. It sounds like a plausible
story, and certainly one the US would be interested in. Is that what will happen as the US exports
more LNG around the world? Let’s see
what the brainiacs at http://foreignpolicy.com
think about that.
A little more
“Above all a private-sector phenomenon”…. These are not state owned oil fields that
will have the US government dictating where the oil is sold too. So yes, a world super power such as the US
adding “Energy Exporter” to its resume will no doubt have ripple effects
throughout the world economy. We aren’t
a white knight, but will continue to do our best to help everyone thrive and
prosper, our gas boom is potentially another tool in the toolbox.
Thanks for checking in and we'll see you next week!
I don’t want to presume, but I would expect with the demand for natural gas exports rising, then so is the price? Is your description of the growing export market for US-produced natural gas leading directly to better energy financing opportunities? Your post seems to indicate that countries like the US and Canada are avoiding the capital commitment to build new pipelines for transport. Wouldn’t the export opportunities you discuss enable energy companies to collateralize these new revenue streams and begin to invest in new projects (or increase distributions to shareholders)? I’m not clear on whether the US being a net positive exporter of natural gas is an equal net positive to the valuation of energy companies.
ReplyDeleteAlso, I’d be interested to know whether only midstream companies, like Kinder Morgan or Williams, are reaping the benefits of exporting the surplus of the shale boom. One would think that the new foreign customers of these two organizations would more dramatically affect their capital structure as opposed to fully-integrated conglomerates, like Chevron. How have the share prices for midstream companies fared during this period from 2011 to 2016?
Finally, I do think the political undercurrents of this situation are important for energy finance. Trade agreements and tax/tariff policy will eventually begin to affect the import/export of natural gas. Allies of the US versus allies of Russia (using your example with Gazprom) will have to account for these items in their supply chain. Companies will then likely want to hedge or make other coordinated financing arrangements to complement the foreign policy positions of each trade partner.
Great blog post, an informative casual read. I don't want to presume as well but I couldn't sense much of a stance overall. I assume your stance on this blog post is U.S. private companies should export cheap natural gas as LNG to countries currently dependent on Russia? Going more towards becoming the "white knight"?
ReplyDeleteDue to the shale revolution, the sudden boost in natural gas and oil production is said to have increased to 3 million barrels a day. For those of us like me who don't think in terms of mboe, this was put into helpful perspective by Daniel Yergin. In the opening statement of the 2014 MIT energy conference he says "that’s more than the output of 9 of 12 OPEC nations." Some food for thought.
The U.S. is definitely a leader in shale gas "fracking" technology but it also might be worth pointing out that one of the big reasons the U.S. has been able to export as much as it does is due to the difference in land use regulation. Exploitation of underground resources is easier in the U.S. where drilling rights lie in the landowners hands rather than the government or public entity. The result of which is apparent in your blog where this is called a "private-sector phenomenon" and development of these underground resources is driven largely by economics. Another reason is the enormous amount of water needed to frack. Although efforts to reuse water containing "evil corporate chemicals" exist, in some countries with shale reserves, water is simply not in ample supply.
Though geopolitical ramifications are discussed, I think there is room for some skepticism. As some point out including Dieter Helm, Professor of Energy Policy at University of Oxford, the feasibility for all these planned LNG export terminals is largely dependent on the market price of LNG. Liquefaction and transport costs add on top of financing for these terminals which give some pause when stacked up against even Japanese LNG import prices. Going forward, countries such as China, Australia and Argentina are expected to ramp up production so given that "transmission mechanisms from U.S. shale gas to world markets are many, varied, quite complicated and typically poorly understood" Professor Helm figures the global impact of U.S. shale gas to be limited. A fair assessment perhaps?
References:
House of Lords - The Economic Impact on UK Energy Policy of Shale Gas and Oil - Economic Affairs Committee. (2013). Publications.parliament.uk. Retrieved 19 April 2017, from https://www.publications.parliament.uk/pa/ld201314/ldselect/ldeconaf/172/17206.htm#n77
Anderson, R. (2015). Will US shale gas bring global energy prices tumbling down? - BBC News. BBC News. Retrieved 19 April 2017, from http://www.bbc.com/news/business-32781779
Jenkins, J. (2014). Daniel Yergin: Looking Back and Forward at Big Trends in Energy - The Energy Collective. The Energy Collective. Retrieved 19 April 2017, from http://www.theenergycollective.com/jessejenkins/344901/daniel-yergin-looking-back-and-forward-big-trends-energy
Hi Brain,
ReplyDeleteInteresting blog but I would like to raise certain key points which the US should consider while on its way to become a net exporting country. I agree that recent years saw a shale gas revolution leading to increased export to Mexico and slightly reduced import from Canada. The revolution also helped the US to reduce import of oil from middle east countries which is a significant achievement in term of energy security.
But as Sehun pointed out, shale gas comes with an environmental baggage and many states within the US like New York and very recently Maryland posed a ban on fracking. In fact, the fracking technology did not get much approval from the US allies too e.g. France, Germany, Poland, Romania, and Denmark have banned fracking altogether. Even France is seriously considering to ban LNG import from the US where gas is produced through fracking.
Now, let’s move farther east to Japan where recently the first shipment of LNG delivered which was exported from the USA. For the sake of diversification, import from the US was a good step but economically, the cost of LNG import from the US was way too high than other competitors. To be precise, importers paid $645/tonne for 211,237 tonnes of US LNG in Jan 2017 which was 67% higher than the average price paid for all imports.
What my point is that showing neighborly love is extremely good considering good pipeline infrastructure but when it comes to acting as a “White Knight”, the path won’t be so easy mainly due to political-economic reasons. Also, how domestic shale gas production, which changed the energy profile, takes shape in the future given the opposition across many countries and states in U.S., is the point which is yet to be seen.
Very informative, articulate piece Brian. Nicely done. In terms of pushing a position, yours seems to be “export baby, export.” This is a fine position, not without some controversy (perhaps diminishing in recent years). Moving forward it’d be nice to see you guys tighten up your pro case, present (succinctly) the con case and try to debunk the latter.
ReplyDeleteYou say “With little evidence to show exports are going to in any way hurt our goal of energy independence or energy security.” I see lots of evidence of growing trade, obviously beneficial right now (otherwise it wouldn’t be happening), but I don’t see evidence that this is NOT going to hurt our energy independence or security. These things probably need some future scenarios or something?
As I look back at history I become a little skeptical of the extent to which energy exports can serve as some huge geopolitical weapon (or tool). I’m reminded of a cliché about oil: “All uses are supplied by all sources.” That is, the market is global and fairly nimble and involves lots of countries that aren’t getting along, but everyone seems to get their energy one way or the other (nat gas is obviously less nimble than oil). One might have thought that the two Israeli wars and America’s continued support of Israel would have been a huge long-lasting energy security problem. They were, especially 73, but not forever. Ultimately the commercial interest of buyer and seller seem to trump a lot of things. WWII is a big exception to all this. Hitler ran out of gas.
Thanks for informing me about my Canadian gas imports/exports!
Grading Rubric (badly formatted because comments don’t allow formatting)
Possible “grades:” Excellent (E), Very Good (VG), Good (G), Could be Better(CBB)
Takes a clear position: VG
Substantiates the position: G
Informs the casual reader: VG
Clarity/quality of exposition: FG