While committing hundreds of billions of dollars to transform previously “flared-off” natural gas into “liquid fossil fuel,” the world’s leading energy companies now are faced with establishing global demand.
For many decades, this evolution was found in the replacement of coal for “utilities” power generation, which lately has seen natural gas overtake the cheaper, but more impure coal-mine products.
With a severe shortage, U.S. natural-gas prices had been as high as $15 per Btu at the turn of the past century. Such prices have sagged to as low as $2.50-$3.10 per Btu in the most recent past, while LNG production has dramatically risen. The chilled gas expenditures have increased production to the point finding new markets, both in the west, as well as Asia, is a challenge that such energy giants as BP, Chevron and ExxonMobil are striving hard to bring LNG into a major expanded demand line.
While Btu prices were less than half of that delivered worldwide only a few years ago, prices are hardly high enough today to justify the multi-billion dollars still being spent at this time at American ports around the Gulf of Mexico. At least six refineries now are being built/modified to convert this previously flared-off natural gas into liquid natural gas.
To fulfill these massive additional LNG capacities, Shell already spent $50 billion to become the world’s biggest shipper and producer of LNG. Chevron recently brought online two Australian LNG projects that cost more than $80 billion.
According to consultant Wood Mackenzie, today, Shell and Exxon say they process more gas than crude oil and BP will do so by 2025. Wood Mackenzie warns large new suppliers are coming online in the U.S., Russia, Australia and Qatar.
But many countries such as Myanmar, Vietnam and South Africa don’t have the infrastructure to import and distribute large amounts of natural gas for electricity and homebuilding use. After building all that LNG production capacity, companies now are forced to look to such less-developed and potentially riskier markets to ship to.
Jason Fear, head of the Business Intelligence consultancy, warns the next wave of LNG consumers are less experienced, less organized and politically less predictable.
In the U.S., gas exporter Cheniere Energy teamed up with French utility EDF SA to fund an outlet for its gas. The project has stalled because of existing environmental permitting issues, but Cheniere is not budging from its basic approach. So far, only one LNG-to-power project has come to fruition in the U.S. Earlier this year, Mazda started importing LNG to fuel a power plant converted from fuel oil to natural gas.
Meanwhile, energy companies face challenges in finding other uses for LNG. Environmental regulations for cleaner shipping fuels could create an opportunity for LNG. But there are only a limited number of ports in the world where LNG as a shipping fuel are available. Having indicated these hang-ups, the overall outlook for LNG looks bright enough to impact liquid natural gas as a major energy fuel in the years to come.
But it has a long way to go before a balance between LNG production and demand at profitable prices can be expected to reach a reasonably profitable major business segment.
Is OPEC becoming self-destructive?
OPEC, led since its inception by Saudi Arabia, has long been considered the dominator of the world’s massive oil production. But in doing so, it may be on the road to its dismemberment.
As late as 2016, the 14 members of OPEC produced almost half the world’s oil production while also controlling three-quarters of the estimated world’s oil reserves. OPEC attempts to be an influential cartel, but since its national self-interest often overrides the group’s objectives, its frequent decisions tend to misfire more often than not. In doing so, it “cheats” on each other, even while trying to present a common global front.
Consequently, OPEC’s goals tend to lead to miscalculations, as happened in mid-2014. At that time, OPEC, as a group, and even non-OPEC Russia, sought to force prices down dramatically to inhibit the upcoming outburst of U.S. fracking growth.
This faulty cartel sought to bankrupt the United States’ fracking oil production by lowering market rates from a high of $140 per barrel for Brent crude and $100 per barrel for U.S. West Texas Intermediate, which were dramatically surging.
But this tactic failed miserably, as U.S. shale oil producers were able to reduce production overheads, as well as costs for other relevant components despite market prices that plunged to as low as $30 for WTI and Brent crude.
Although this did tend to eliminate some U.S. producers, America’s oil-shale fracking industry now is able to be more competitive worldwide. The U.S. oil export boom is steadily increasing, as are shipments of liquid natural gas from Gulf of Mexico ports now being expanded to accommodate the increased volume.
Ironically, OPEC’s attempt to wipe out U.S. oil-shale production failed as it now is stronger than ever, especially after the U.S. lifted its 45-year-old export embargo late last year. In this case, OPEC succeeded in elevating U.S. oil production into world co-leadership, which is bound to make America a powerful world energy exporter for years to come.
Will 2018 engender an economic comeback?
Although economic predictions always are risky, early in the game 2018 retains the major elements of a solid comeback.
With 2017, the first full year of Trump’s control generating a 2.2% GDP comeback, a gross domestic product nearing the 3% mark seems in the cards. As the post-financial crisis multi-years accelerate their momentum and with 2017 matching 2015’s highest rebound in the current decade, 2018 carries all the necessary ingredients.
Although Trump critics wage a war against the expectations of a solid economy, reality indicates otherwise. This belief is led by confidence generated by both business and labor, as the former is increasing growth spending on capital investment, while labor unions and members alike place increasing trust in the president’s efforts to return to Made in America manufacturers. Most independent businesses are particularly encouraged by the rollback of excessive regulations the previous administration allowed to impose at will.
As the jobless rates decrease and employment opportunities continue to expand, this will impact accelerating spending by the nation’s rank and file.
While inflation will creep up slightly, a continuing moderate dollar value and rational pay increases also will enhance consumer spending. But the biggest factor to stimulate both greater savings as well as purchases will be overall tax cuts geared primarily to the middle class. Even more encouraging will be the incentive for equipment and expansion purposes by corporate manufacturers that have been carrying a 35% tax rate, highest in the industrial world.
This also will keep more monetary liquidity at home and likely make it more attractive for at least some of the $2 trillion residing in foreign banks to return to the U.S. Even the tragic weather storms, which caused both extensive damage and temporary job opportunity reduction, will engender reconstruction and employment increases in the months ahead.
Also abetting U.S. domestic growth will be expected increased demand as U.S.-made goods will benefit from America’s comeback, assuring a substantial lessening of the export/import margin that has been widening negativity since the post-financial crisis period.
Much of such margin benefits will come from a revived European economic growth and a surprising jump in U.S. export plusses with China and other major East-Asian economies.
Additionally, an unexpected major jump in U.S. oil and natural gas exports likely will set new records in 2018.