With the U.S. oil industry continuing to wallow in oil’s ongoing price deficits, as 2017 gets underway, liquid natural gas is positioned to become the pleasant fossil-fuel surprise during the year.
Unknown to most is that 2017 will be the first time in 60 years that America will sell more natural gas volume worldwide than it has bought. It’s expected that LNG chilled to 260° F so that it can be shipped by tanker will have doubled over the past year to 32 billion cubic ft. per day.
As of this writing, 34 shipments of LNG have already been exported from Cheniere Energy’s Saline Pass terminal in Louisiana. Most of these shipments have been headed to Latin America. Since the first tanker left in February 2016, 34 cargoes have since departed through early October with two-thirds going to Argentina, Brazil, Chile and Mexico. Colombia will be a new buyer this year. That South American nation will begin importing U.S. LNG from a floating regasification vessel by the end of this year.
Shipments to Asia also are in the cards as India increases LNG imports from the U.S., due to our globally competitive low prices.
Europe also will be in play as the U.S. price structure can be competitive with Russia, which supplies 40% of the European Union’s gas imports. Turkey, Russia’s third-biggest buyer, took its first U.S. LNG cargo in late September last year. This will provide much of Europe with a natural gas alternative to compete with Russia.
Another benefit in worldwide U.S. LNG sales is the newly expanded Panama Canal, which now is wide enough to accommodate most LNG tankers. China-bound ships may save as much as $3.2 million per round trip by going through the Panama Canal rather than the current lengthy trip through the Suez Canal.
By becoming a world-class net exporter of natural gas this year, it will provide the U.S. with a giant forward step toward overall energy independence. With other American LNG conversion stations springing up this year, the Energy Information Agency expects a record 81 billion cubic ft. per day rate by the end of 2017.
With prices going substantially higher as the world’s overall demand increases, plus its voluminous usage in the chemical industry, these factors will make LNG the big positive surprise factor in the U.S. economic comeback this year. Whether a similar export expansion in light condensate West Texas Intermediate oil also moves forward will depend on the boldness of the new incoming administration.
Fossil-fuel production boom
The unanticipated shock of the price crash enveloping coal, natural gas and oil since mid-2014 had been expected to bring a practical halt to an incredible energy boom. This surge had brought WTI oil production from a low of less than 4 million barrels per day at the turn of the current millennium to more than 10 million BPD by 2014. This put the U.S. on a par with Russia and Saudi Arabia as the sole trio able to consistently produce at such a high level.
But with the fossil fuel demand depression that encompassed both the U.S. and the rest of the developed world by mid-2014, it was expected that a combination of excessive investment funds, drilling rigs, etc., and a torrent of bankruptcies would quickly reverse production.
On the contrary, while more than 100 U.S. oil and gas companies have declared bankruptcy in the last year alone with more than $100 billion of debt and equity at risk, this has resulted in only a minor effect on inventory reduction.
Even when accounting for recent drawdowns, oil producers and importers added 18 million oil barrels to U.S. stockpiles last year. This has brought the total to near 500 million barrels, close to an all-time record.
There also was enough coal on hand in early autumn to fuel every coal-fired power plant in the country for more than 80 days, according to the most recent data from the U.S. Energy Information Administration.
With OPEC, in general, and the questionable ability of Russia and Saudi Arabia to control their intensive production capabilities, it's doubtful that international oil price levels, both in the U.S., and the energy world at large, can expect a price return to anywhere near the $100 per barrel range. This had seemed an inevitable long-term target, as the year 2014 started, but now looks even remotely unreachable as the year 2017 develops momentum.
Heading toward a record 2017?
While 2017 is anticipating a humdrum global economic impact both in the U.S., as well as the world in general, an energy rebound may be the big surprise for America’s lagging economic growth next year. The following are the key trigger points to watch for:
1) While coal is on its last legs, both as domestic powering for utilities, as well as exports, natural gas is expected to provide up to two-thirds of electric utility power on new and expanded facilities.
2) As natural gas reaps the further benefits of usage by the domestically expanded chemical sector, its conversion to liquefaction is well on its way, as are the Gulf Coast ports from which its export will emanate.
3) The lifting of the Nixon era 1974 oil embargo, included in the congressional/presidential budget agreements, will benefit from the exports of light condensate (WTI) oil, which is in strong demand at high prices all over the world.
4) The energy derivatives of other end-use products, such as propane, diesel, jet fuel, and heating/cooling elements are destined to set records during the coming year.
5) While little attention has been paid to the fast development growth usage in East Asia and parts of Africa and Latin America, these areas will become natural markets for all aspects of U.S. energy, as conversion and export facilities reach the completion stage.
6) Although the U.S. automobile boom is likely to taper off at the 2016 level or even a bit less, the continued relatively low price of gasoline will empower a growing population to increase driving, especially as air traffic becomes more expensive and harder to obtain.
With OPEC finally returning to their production freeze/price-increasing tactics, U.S. fracking will return to its full potential, reaching a production level to an excess of 10 million barrels per day — competitive with world-leading oil producers Saudi Arabia and Russia.
Barring unexpected obstacles, the U.S. energy sector should anticipate its greatest year ever in 2017.