We’ve all heard the story before. In the next couple
decades, energy demand will skyrocket. Oil thirsty nations like China and India demand more air conditioning, more
home game consoles, and more home PCs as they grow into global middle class
giants, and hot on their heels maturing economies like Poland and Brazil want
their cut, too.
The EIA forecasts a 50% increase in demand. Population-wise,
that’s like adding another China and India to the world, on top of all the
power strain we have now. Picture those East Coast blackouts. Yep, that’s going
to be all Asia unless we get more electrons.
In picture form it looks like this:
And the only other place on Earth you see a big divide like
that is the 38th parallel
But any time there’s a challenge, there’s an opportunity.
This is one of those topics that interests me, because:
1.
It’s a growth market
2.
It’s a market on which the US can capitalize
For this post, I really want to talk about Liquefied Natural
Gas (LNG), because it’ one of those geeky tpics no one talks about. Instead we
get daily reports on phallic oil pipelines or sexy “natural” green energy.
LNG? Come on…
Well, you should care. Facts below.
LNG is a quick, quick, quick growing market. Global capacity
rose from less than 50 million tons in 1990 to almost 240 million tons in 2012.
That’s a nine-fold increase, in a span over 20 years. That’s “make China look
slow” growth.
In the past few years especially, imports have risen
dramatically, as Korea and Japan buy up all the LNG they can to power their
growth. For Japan, that’s partly because of the nuclear shut-down, but naturalgas is a relatively clean-burning fuel compared to coal.
And it’s also gotten a lot of cheaper because of new
production techniques. That means that even in the US electricity for natural
gas has exploded:
Enter LNG. Natural gas gets moved by pipeline, a lot like
oil. Unlike oil, natural gas is….well…
Gaseous.
That makes moving gas a lot more difficult, which has opened
up some pretty huge arbitrages. Natural Gas in Japan is several times more
expensive than in the US (barring this crazy winter), and even the UK pays a
lot more.
It’s also an immature market: Japan and Korea and other
nations pay for gas on prices indexed to oil. That means oil goes up, natural
gas goes up. Sort of like you paying more for your loan because the Fed Rate
went up. Which might make sense, because those are general credit rates that
should be linked. But natural gas is NOT oil. The relationship is more like
paying extra for your milk, because the price of carrots went up.
That might be expected in an immature market, not in a
vastly mature market.
A lot of the Asian nations have been trying to alter these arrangements,
without terribly much luck.
But LNG pricing is a focus of the US government. Obama even guaranteed $6
billion in financing to help energy projects go ahead in Asian nations. It’s an
essential part of the “pivot.”
US LNG, though, has been lagging.
Right now it’s a not major effort of US, which restricts the export of natural
gas, and what gas does get exported mainly gets done via pipeline. Granted,
it’s only recently that we’ve come into a huge gas boom, but this is a major growth
opportunity for the US. The EIA is saying we might be totally gas-sufficient as
soon as 2020, which means in 10 years we might have a huge export opportunity.
Particularly if other nations start demanding LNG imports as well. Argentina,
for instance, recently started bidding against Japan on some contracts.
Were I in a policy position, this would be one of those
“Grow as quick as you can” industries, particularly if it energizes regions
like the Gulf Coast (which could definitely use a good boost given its poor
faring on most quality of life metrics).
It’s one of those exciting things to watch and something to
keep your eye on in the medium-term. Relevant thoughts include:
1.
US diplomacy in Asia
2.
Growing energy demand
3.
Green Energy in general
4.
Jobs in the US
5.
Regulation in the US
6.
Asian cooperation and flexibility (can they
create continent-wide partnerships to reduce costs)
Have a great week everyone!
-Robert
Actually I think the most convincing reason at this point in time to expand exports of LNGs would be to ship them off to Europe to lower their dependency of Gas from Russia, thus choking off the major political leverage that Russia holds over the West. If doing this action were to be considered an improvement of our National Security, then I suppose I'd say go with it.
ReplyDeleteOtherwise, the distributional effects of this would mean more revenue to Oil & Gas Companies involved in exports and its workers, and slightly higher natural gas products for US Consumers. Our trade deficit would fall slightly as a result too.
However, I do think that this effect is generally hyped in our media, and would probably only amount to a .1% or .2 of extra growth per year, so you have to factor in its environmental effects with the water supply, and further dependency on Fossil Fuels. Solar is poised to cost competitive with Coal and NG pretty shortly, and Wind already is, so in any event, reliance on electricity generation from Natural Gas would probably be a 2 decade phenomenon at most.
Hey Rob