Idle Rambling on a Saturday Night -- Energy, Fracking, But Not the Bakken

Updates

January 27, 2013: electricity is getting so expensive in Germany (subsidizing renewable energy), companies there are moving to Turkey. Sent in by "anon 1." Thank you. Wow, read this:

A 47 percent increase on Jan. 1 in the fees grid operators set to fund wind and solar investments is driving the maker of paint ingredients to Turkey, where next month it will start making a new type of hardening agent at a factory near Istanbul.

Istanbul, Not Constantinople, The Four Lads   Later, 1:16 am: just after posting the article below, Don sent me a great Barron's article that validates the manufacturing boom the US will experience due to cheap energy due to fracking due to lessons learned in the Bakken.

The Rust Belt owes its new shine to many factors, including rising wages and industrial-land costs in Asia. But none is bigger than the U.S. energy boom. Thanks to a head start in extracting oil and gas from shales, North America now produces far more natural gas than any other continent.

Unlike oil, gas isn't easily transported across oceans, and a result is some of the world's cheapest energy within our reach: Natural gas here costs $3.55 per million British thermal units, versus roughly $12 in Europe and $16 in Japan.

Cheap energy not only reduces our trade deficit and our addiction to Middle East oil, it also makes our factories more competitive globally -- a boon for a country that had gone from exporting American goods to exporting American jobs.

The biggest beneficiaries are energy-guzzling companies like chemical producers and steelmakers, and Barron's has identified eight stocks that should prosper in our gas-fueled manufacturing upswing. They are Southwestern Energy, LyondellBasell Industries, Nucor, Dover, Calpine, CF Industries, Williams, and Union Pacific. But any glow will also rub off on regional lenders, home builders, and local small businesses.

"The U.S. is the Saudi Arabia of natural gas," declares Nancy Lazar, co-head of the New York research firm International Strategy & Investment. "And Middle America is my favorite emerging market."

This is not an investment site, but regular readers should be seeing some investment opportunities. However, do not make any investment decisions based on what you read here. 

Original Post

This is a most fascinating article, sort of a fact-filled op-ed.

First the data points:

• the US will become almost self-sufficient in oil and gas by 2035
• the US will overtake Russia in natural gas production in less than two years (by 2015)
• the US will overtake Saudi Arabia in oil production by 2017

Of course, several assumptions are being made .....

But assuming the current administration does not screw this up ....

I wonder about one data point above: "the US." I've argued earlier that looking at "US-only" statistics is inappropriate. For all practical purposes one must also include Canada, and perhaps Mexico. With the exception of the Keystone XL, the commodity border seems to be entirely open between the US and Canada. Canada is a net exporter of fossil fuel as it stands now; I would assume that if the US "will become almost self-sufficient in oil and gas by 2035," North America should be self-sufficient long before then.

One data point not mentioned in the article: Saudi Arabia is now its own biggest consumer of its oil production.

So, now back to the op-ed portion of the linked article at the top.

A US industrial boost following its ability to tap abundant shale gas reserves is provoking fears that imperilled energy-intensive European businesses will find it harder than ever to compete.

But calls for the EU to deliver a ‘silver bullet’ and emulate the US by tapping shale gas through ‘fracking’ remain controversial because of environmental and logistical concerns.

Industrial manufacturers have announced investments of more than $90 billion in the United States to take advantage of its cheap natural gas, according to calculations that underline the revolutionary impact of shale gas on US industrial growth.

Petrochemicals, fuel, fertiliser and steel companies, attracted by cheap energy are amongst those committed to multi-billion dollar investments, according to Dow Chemical, which has announced a $4 billion investment in Texas and Louisiana and calculated the total value of US industrial investments at $90 billion or more, the Financial Times reported in December.

The development has spurred fear amongst concerned European manufacturers that they will be unable to compete in energy intensive sectors. It is clear that industry such as steelmaking, currently slumping in the EU, is shifting towards the United States after decades of decline.

The EU should be concerned. As reported earlier, it is less expensive for Germany to ship iron to the US to turn it into steel, and then shipping the steel back to Germany for specialty-steel manufacturing. That's how cheap our energy is.