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New Congress Could Grease Shale Gas Exports

12 November 2014 in Trading Ideas

Forecasts calling for much of the US to get smacked by frigid temperatures were enough to juice natural gas prices last week, but it’s the energy demand from overseas markets that has been garnering much of the attention this year.

For much of 2014, many politicians (particularly of the Republican variety) and oil and gas executives have been suggesting that while the US shale gas boom has boosted America’s energy independence, the energy harvest could play a role in helping global allies.

Earlier this spring, John Boehner, the Republican speaker of the House of Representatives, said that expediting the approval of natural gas exports to Europe was one way to “stand up to Russian aggression.” Senator Marco Rubio, a potential Republican presidential candidate, said the US should open up natural gas exports to allies “so that they are less susceptible to Russia’s efforts to use energy as a bargaining weapon.”1

The opponents of gas exports are led by companies, notably Dow Chemical, that want cheap US gas as a feedstock. The Financial Times reported that a group of manufacturers called the Industrial Energy Consumers of America said that exporting gas was the wrong geopolitical solution: instead the US should export hydraulic fracturing technology to let others extract gas from their own shale.

The pro-export lobby is also led by the oil and gas industry and its trade group the American Petroleum Institute, which says more exports would create more US jobs. It also has embraced the geopolitical role of gas. “Our LNG exports could significantly strengthen the global energy market against crisis and manipulation,” said Erik Milito, an API director.

With supply exceeding demand here in the US, the industry has already begun pursuing export strategies, with about 50 new projects for liquid natural gas export terminals awaiting government approval, according to Terri King, ConocoPhillips’ director for oil and gas.2

Tapping foreign markets is key to sustaining production growth, King said, because those markets offer far higher returns than in the US, where oversupply has severely depressed prices. Producers earn about $3.90 per 1,000 cubic feet in the US today, down from more than $13 in 2008.

In contrast, producers can earn more than $8 per 1,000 cubic feet in the UK, and more than $16 in Japan, King said.

With last week’s cold snap across the US acting as a possible preview for the next several months, natural gas prices jumped higher recently – as have the shares of many shale gas-related stocks. The Shale Gas motif has increased 10.3% in the past month. During that time period, the S&P 500 has increase 7.1%.

So far in 2014, the motif is off 10.7%. The S&P 500 has increased 12.2% this year.

While gas prices will likely continue to retain their trademark volatility, a Republican-controlled Congress could become instrumental in facilitating the increase of the global customer base.

1Barney Jopson, “US gas boom could be geopolitical weapon,” ft.com, March 6, 2014.

2Kevin Robinson-Avila, “Exports key to sustaining natural gas boom,” abqjournal.com, Nov. 5, 2014, http://www.abqjournal.com/491939/biz/exports-key-to-sustaining-natural-gas-boom.html, (accessed Nov. 10, 2014).

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