By the time this appears, barring another Bush/Gore-type imbroglio, Americans will have elected their president for another four years. While the economy has been the central issue during the long months of electioneering, energy – as a main driver of both home economics and the country’s overall economic performance – has not been far from the forefront. Both the Obama and Romney campaigns have taken great pains to frame  their take on the energy issue for voters. The candidates have outlined their respective visions of the Federal Government's role in determining how the nation’s growing demand for electricity and transportation fuels will be met.
The debates have taken on added significance due to the major changes that have taken place in the US energy mix in recent years. The exploitation of vast reserves of unconventional oil and gas, particularly in underground shale formations across the country, is beginning to ease the US dependency on expensive oil and gas imports for the first time in decades and talk of energy self-sufficiency – an impossible dream just a few years ago – is beginning to proliferate.
After allowing for the ideological split between the Tea Party conservatives and the more progressive liberals at the fringes of US politics, there is a vast American middle ground of voters who believe that their leaders in Washington owe it to them to provide the lowest possible fuel prices at the petrol pump. This has ever been the case. But in the 2012 election, against the background of this new, emerging energy scenario, the campaigners have also had to take into account growing public support for the idea of energy self-sufficiency and the need to end any kind of dependency on Middle East oil.
On being made aware of his country’s new-found energy wealth, the man on Main Street has decided that all the expanding domestic oil and gas output must be used to replace imported product in the drive to achieve this mystical goal of energy self-sufficiency that has only recently been revealed as a possibility.
Unfortunately, this simplistic approach ignores the realities of the marketplace and the intricacies of the US energy picture. It also takes no account of the benefits that can accrue to the US economy by exporting some of the country’s rising output of unconventional oil and gas.
The case of natural gas provides the most robust example. Thanks to the application of home-grown drilling technologies and the availability of a wide-reaching pipeline network, vast new reserves of shale gas are being brought into play from deposits across the country. The new supplies are driving US natural gas prices down towards historic lows. US gas prices are now at one-third the European level and one-sixth of the prices being paid in Asia.
The shale gas boom has also prompted operators of US LNG import terminals, built early in the last decade to accommodate an expected surge in purchases of overseas gas but now standing largely idle, to propose the construction of liquefaction plants on site in order to turn their facilities into shale gas export terminals. The US Department of Energy has received applications for 16 such LNG export projects and one of these has now achieved all the necessary regulatory approvals and is under construction.
The export proposals have raised a storm of debate in the US. A large body of public opinion has it that any energy exports are bad. Exports will reduce domestic availability and drive up prices. Exports will not only jeopardise US energy security but also make the goal of energy self-sufficiency impossible to attain. They will saddle future generations with lifestyles compromised by the need to pay high prices for meagre domestic resources and rising volumes of imported fuel.
The oil and gas industry on the other hand has sought to explain, to both politicians and the public, that this view is too narrow-minded. Drillers point out that they have revealed shale gas reserves sufficient to last for 200 years at current consumption rates. The plentiful supplies could also be earning the US valuable trade dollars in the form of LNG exports without compromising to any great extent the very low prices US consumers are paying for their gas.
Furthermore, expanding shale gas production, including for export as LNG, LPG and ethane, is a job creator. Natural gas currently supports 2.8 million American jobs and shale gas alone is expected to employ 1 million more workers over the next two decades. The new jobs will be created both directly in the natural gas industry and in related fields such as manufacturing, construction and chemicals. The use of gas as a petrochemical feedstock, for example, adds value to the primary fuel and a number of US chemical manufacturers are gearing up to boost export volumes on the back of cheap feedgas.
Natural gas has also been offering something of an economic lifeline to communities in these straitened times. Shale gas production contributed USD 18.6 billion in federal, state and local government tax and federal royalty revenues in 2010 and these annual receipts are expected to more than treble to just over USD 57 billion by 2035. The average US household is set to save close to USD 1,000 in heating bills in 2012 thanks to the fall in natural gas prices over the past five years.
The low natural gas prices currently pertaining have prompted more and more US drillers to switch their attention to oil shale formations. Despite some success in reducing US oil import volumes in recent years, through energy switching and improved domestic input, the price of the benchmark West Texas Intermediate crude is still up near the USD 100/barrel mark, only slightly below that of Brent crude. Considerable incentive remains for US producers to place growing emphasis on shale oil.
While the development of US shale formations will not ease the country’s dependency on oil imports to the same extent it has in the gas sector, overseas oil purchases are nevertheless expected to plummet by 4 million barrels per day (bpd) between 2008 and 2020, to around 7 million bpd, as a result of rising shale oil output. Within this scenario there are many opportunities to increase exports of high-value petroleum products processed from light shale oil and to concentrate imports on crude oil.
By far the greatest use of oil in America is as transportation fuel. For US drivers petrol prices have always been a primary focus. They are “immediate” in that this is the fuel for which the wallet has to be opened every day. While consumers bemoan the “high prices” they have to pay, government reluctance to tax this sacred cow too fiercely means that Americans, who consume one-quarter of the world’s oil, pay much less than Europeans or Asians to drive their cars.
The new US president will be tasked with the job of helping explain the realities of energy supply and demand in a global context over his coming term. If he is able to somehow lessen the emphasis his countrymen place on petrol prices and get across the idea that energy independence is a more realistic goal than energy self-sufficiency, he will have achieved some measure of success.
While promoting the somewhat bitter medicine that is the concept of improved energy conservation, the new president has the advantage of being able to offer the mammoth gas reserves that the country is sitting on as an alternative transportation fuel and as a money earner in the international marketplace. In that sense he is a very lucky head of state.
Source: BIMCO