US Shale Boom Is Back
By Paul Homewood
The Times reports:
Among many bold promises made on the presidential campaign trail, Donald Trump pledged to unleash an “energy revolution” that would release vast riches from America’s shale oil reserves. It is doubtful that he expected Saudi Arabia to do the job for him.
Yet, since the Saudi-led Opec cartel agreed to cut oil production in November, the US shale industry has been boosted to levels not seen since 2014.
“The shale boom is back,” Norbert Ruecker, head of commodities research at Julius Baer, said. “Over the coming one and a half to two years, we’re probably going to be back at the previous high levels of production.”
The first US shale boom, which lasted from 2012 to 2014, took advantage of oil prices that hovered around the $100 mark. By the end of 2014, however, oil had plunged below $50, and a year later, was close to $25.
The price collapse was orchestrated by Opec. Its 13 members pumped and pumped to create an oil glut that pushed down prices, knowing this would make it uneconomical to extract oil from shale. However, the price fell too far, and Opec members suffered. In November, they and 11 other nations including Russia agreed to cut production for the first time in eight years. The oil price has since held around $50, despite concerns that Opec members would not adhere to their promises.
The US is thought to hold the world’s largest reserves of shale oil, with about 80 billion recoverable barrels, according to the last count by the US Energy Information Administration. Britain, in stark contrast, holds less than 1 per cent of that amount: about 700 million barrels. Shale oil accounts for about 52 per cent of all oil production in the US.
The EIA last week forecast US shale oil production would climb in April at its highest rate in five months. Production is expected to rise by 109,000 barrels per day to nearly 5 million.
All over the US, dozens of oil rigs are coming back online every month. The count has increased for nine straight weeks, figures published yesterday by Baker Hughes, the oilfield services company, showed. There are now 631 active oil rigs in the US, more than double the number at the end of 2016. The EIA expects that output next year will surpass a record set in 1970.
One of the results of the shale gas revolution has been the renaissance of US manufacturing, as CNBC relate:
The United States is in the early stages of a manufacturing renaissance, and is expected to grow, thanks to cheap and plentiful natural gas.
The U.S. is expected to see a wave of petrochemical plant openings between now and next year. Those plants represent about $50 billion of $160 billion in manufacturing investment earmarked by the industry since 2012, according to James Fitterling, president and COO of Dow Chemical. Among them are several big ethylene plants, including one expected to be opened by Dow in Freeport, Texas, in the second quarter.
"It’s about 1.5 million tons of new capacity for us. It will be up in the second quarter sometime," said Fitterling, speaking in Houston at the CERAWeek conference, sponsored by IHS Markit. He said Dow also opened a billion-dollar propane dehydrogenation plant in Freeport at the end of 2015. "That was the first megaproject we’ve done on the Gulf Coast for quite some time."
CB&I’s Cameron LNG project in Hackberry, Louisiana
Exxon Mobil this week announced a $20 billion spending program to expand its manufacturing capacity along the Gulf Coast, including some previously announced investment. The announcement came at CERAWeek.
Industry executives say this is the first big wave of chemical plant construction in decades.
President Donald J. Trump tweeted congratulations on Exxon’s investment and promise of jobs. But the petrochemical renaissance has been building for several years. Trump’s policy may unleash more if it results in the creation of pipelines and other infrastructure.
"The U.S. has gone from a shale gas boom to a petrochemical boom," said Scott Sheffield, CEO of Pioneer Natural Resources. While natural gas industry experts discussed the outlook for a long period of low gas prices at the conference, the petrochemical industry described what only can be viewed as a boom in an industry that had been declining in the United States.
Natural gas production in the United States is expected to continue to grow, with an expanding LNG export market that should make the United States a net exporter in the next several years, along with pipeline gas sales to Mexico.
Natural gas analysts say industrial demand is one thing that could help the natural gas market, which is expected to see prices remain flat for years. That’s a positive for the petrochemical industry, which uses natural gas as a feed stock. There are five big ethylene plants coming online on the Gulf Coast in coming months, and the first, Occidental Petroleum‘s joint venture with Mexichem, started up this past week. Others are being built by Exxon Mobil and a Chevron Phillips venture.
The big ethylene plants are energy intensive, and now it’s cheaper to operate them in the United States, where plentiful natural gas is less expensive than other locations. "They’re so big, they consume 75,000 (barrels of oil equivalent) a day," Witte said. He expects to see more big plants come online, and in places like Ohio and Pennsylvania. Royal Dutch Shell currently has a big project under way in Pennsylvania.
Dow’s next big-scale project would be in a seven- to 10-year window. "The question is, where would that be? We have a range of options around the world where that might be," Fitterling said. "If the environment is right and the economy’s right here, and you’d think with the reserves you’ve got in the U.S., the U.S. is going to be on that shortlist as a place to make a next-generation investment," he said.
And all of this is good news as well for India:
The Indian government can breathe more easily about one of its macro-economic concerns: Rising global oil prices. Despite a successful effort to reduce oil production by the Organization of Petroleum Exporting Countries, oil prices recently fell to below $ 50 a barrel, a three-month low. The primary reason: A countervailing surge in shale oil production by the United States. The US’ ability to quickly ratchet up oil production in response to higher prices has put a ceiling on global crude prices. There is an additional benefit in a parallel compression of natural gas prices. This is excellent news for India, among the world’s largest importers of oil and gas.
The Narendra Modi government has benefited hugely from the slump in oil prices that began in 2014. By some estimates the drop in world oil and gas prices provided a windfall of over $10 billion to New Delhi in the 2015-16 financial year. The benefits were two-fold. The central government has had to pay less in fuel subsidies. It has also, by passing on as little as a fifth of the drop in oil prices to Indian customers, given the Indian exchequer a multi-billion dollar revenue windfall. One of the main reasons the Modi government has largely been able to meet its fiscal deficit targets has been its ability to impose higher taxes on imported oil without affecting prices for Indian users.
With oil and natural gas so abundant and cheap, renewable energy looks ever more irrelevant.