Natural Gas Pipelines Changing America; Saudi Arabia Investing In US, China Because Of A Shortage Of Gas -- July 26, 2015

Updates

Later, 11:33 a.m. Central time: after posting the note below, I ran across this story, which supports my these that the shale revolution in the US is huge, much bigger than I think most people know. Bloomberg is reporting: Saudi Arabia's Sabic is considering investing in shale gas in the US.

Saudi Basic Industries Corp., the world’s second-biggest chemicals manufacturer, plans to expand investment in U.S. shale gas projects through joint ventures.

Sabic, as the company is known, signed an agreement with Houston, Texas-based Enterprise Products Partners L.P. to get shale gas.

The company may use the feedstock in the U.S. or export it to other countries such as the U.K., he said. Sabic has converted crackers at U.K. plants to use shale gas as feedstock to produce olefins and their derivatives more competitively.

“The main areas in the U.S. we are looking to invest in are the northeast and the south as they fit our overall expectations including government support, labor laws and unions."

Sabic, which in 2007 bought General Electric Co.’s plastics unit for $11.6 billion, said in April it plans to expand in China and the U.S. because it’s difficult for the company to grow in Saudi Arabia due to a shortage of gas. The Marcellus shale formation spread across Pennsylvania, West Virginia and Ohio is America’s biggest natural gas producer, with output rising more than 14-fold since January 2007.

Oil and natural gas tend to be found together in the same areas of the world, although the mix (natural gas vs oil) will vary in different fields. But when I read that Saudi is expanding in the US and China because it’s difficult for the company to grow in Saudi Arabia due to a shortage of gas it catches my eye. The spokesman didn't say "an anticipated" shortage of gas, nor did he say a "slowing of production" of gas now or in the future, the spokesman said the shortage of natural gas already exists in Saudi Arabia. Its neighbors have a lot of natural gas. Interesting.

Original Post

 

I didn't post this story when it was sent to me by a reader a few days ago. I had a lot to do and this story has so many incredible story lines. BloombergBusiness is reporting that a glut of cheap natural gas trapped in the U.S. Northeast will be heading south by the end of the year, radically changing the price differences between the regions.

For me, the biggest story line is the huge advantage the US will have over the rest of the world with all its cheap energy.

I am not articulate enough to expand on all the story lines in the linked article, and even if I did, I do not have the time. I think I will just throw out some random, stream of consciousness thoughts that come up when reading this story.

The US will have a huge advantage compared to the rest of the world with all its cheap energy.

Europe will be left behind when it comes to energy. 

The US will, if not already, become the largest exporter of energy to the rest of the world.

The war on coal may have been started by a community organizer, but the war was won by roughnecks.

Despite a gazillion dollars to stop pipelines in this country, 1,000 miles of new pipeline was built for every one mile of pipeline stopped (for natural gas and for crude oil).

One of the largest US natural gas pipelines is now on-line. Interestingly, it does not flow west to east, but east to west.

There are only a few companies big enough to tackle these huge pipeline projects, sort of like franchise players on an NBA team: Williams, Kinder Morgan, Spectra, Sempra, and a few others.

After 2017, the renewable energy push is dead. Renewable energy won't be dead, but the "hype" will have ended. Even Jane Nielson might notice (but if she does, she won't talk about it).

Speaking of which, I think Harper Lee made a mistake publishing (or being talked into publishing) Go Set A Watchman. However, it was "made-to-order" under the current racial divisiveness in this country. Ironic. New York Times contributor on this story.

How incredibly spectacular the shale revolution was.

And how long it's going to last. Bentek said the Bakken would max out at 2.2 million bopd; data at that time of the Bentek study suggested new wells would be drilled through 2030, and the Bakken would last through 2100. With so much oil on the market now, it's very possible the Bakken production has topped out at 1.2 million bopd, and will stabilize at 750,000 bopd. That means the Bakken is going to last a lot longer than originally thought. And it's going to be developed at a much more moderated pace, making quality of life in the Bakken so much better.

The cost of energy will definitely be reduced across regions of the country. Manufacturers will move to states where states want them, and where there is a "right to work" regardless of whether one belongs to the right club or not. According to the article:

Spot gas in Florida is at $2.94 per million BTUs, while Marcellus supplies at the Leidy hub slumped to $1.26.

The difference between the two has averaged $1.48 this year and will shrink to about 30 cents as pipelines come online over the next three years, Franjie said. Tudor Pickering analyst Jeff Schmidt similarly forecast between 20 to 30 cents.

Let's keep it simple. Florida, $3.00 per unit; in the Marcellus, $1.25 per unit of natural gas. That's huge.

It's gonna get even cheaper to live in Florida -- BTW, no state income tax in Florida; can't say the same for frack-hating New York state.

Gas output has jumped more than 14-fold since January 2007, reaching a record 16.5 billion cubic feet a day earlier this summer. By the way, the North Dakota Bakken well that started the boom was in 2007. It was an EOG well in the Parshall oil field. How coincidental.

More staggering figures (can you say sayonara to "intermittent energy"?):

An expansion of Williams’s 10,200-mile (16,400 kilometer) Transcontinental Gas Pipeline system on the East Coast may enter service in December. Other proposals totaling as much as 7.5 billion cubic feet a day of capacity are scheduled to come online in 2016 and 2017. One billion cubic feet of gas is enough to heat about 10,000 U.S. homes for a year.

Florida power plant demand for fuel hit a record for April, up 13% from a year earlier. The state is 
home to six of the 20 fastest-growing US metropolitan areas. Can you spell "electoral college"?

Near the end of the article:

The shipments underscore how quickly the Marcellus shale formation -- spread across Pennsylvania, West Virginia and Ohio -- has dominated the gas market. It has become America’s biggest producer in less than a decade and is now spreading its wealth across the country.

By 2017, they say, because of the shale revolution and cheap energy, manufacturing costs in the US will be less than those costs in China.

By the way, EQT reported the biggest natural gas well ever in the Utica just a few days ago, and there are suggestions the Utica is much bigger than previously thought, and could be bigger than the Marcellus. Or maybe it already it. I can't keep track of them.

Finally, at the end of the article:

The pipelines coming online over the next three years will mark an “opening of the floodgates” to the U.S. Southeast.