Trade and Small Business Opportunity: Energy Exports
By SBE Council at 29 January, 2017, 10:19 am
by Raymond J. Keating-
By definition, trade – whether it occurs in a small town or across international borders – is mutually beneficial. Indeed, any transaction that is voluntary – that is, not engaged in due to coercion, such as at the point of a gun – provides value. After all, if a trade does not improve one’s circumstances, then why engage in the transaction? There is, in effect, opportunity to be capitalized on via trade, and that opportunity materializes thanks to exports, imports, as well as international investment and more efficient allocation of resources and production.
That simple economics lesson needs to be kept in mind as our nation works through debates and discussions about international trade matters in coming weeks, months and years. Small businesses and entrepreneurs benefit tremendously from trade – both as exporters and importers. According to the Census Bureau, small- and medium-sized companies account for 94.4 percent of the firms that export and import.
Energy and Global Markets
Over the past decade or so, one of the most unexpected trade opportunities has developed on the energy front. Dating back to the 1970s, many bemoaned U.S. reliance on foreign sources of energy, and quite frankly, few saw that changing much for the foreseeable future.
In response, politicians forked over big taxpayer subsidies to renewable efforts like wind and solar in the hopes that some kind of breakthrough might alter the energy equation. Predictably, little came from such subsidies, certainly not enough to justify the costs.
But then a funny thing happened. Private-sector entrepreneurship, investment and innovation overturned the status quo, creating an energy revolution – thanks to advancements in hydraulic fracturing and horizontal drilling – that transformed the U.S. into an energy superpower in terms of oil and natural gas. By the way, that came on top of the U.S. being a leader in terms of coal production.
Today, we are no long debating how to end U.S. reliance on foreign sources of energy, but trying to figure out how far the U.S. can go in terms of capitalizing on trade opportunities as a net energy exporter.
On January 13, 2017, the U.S. Energy Information Administration reported: “In November 2016, the United States became a net exporter of natural gas on a monthly basis for the first time since 1957, based on data from PointLogic. This was supported by infrastructure improvements—including natural gas pipelines and facilities for liquefying natural gas for export—that enabled suppliers to meet increasing demand from foreign markets. U.S. pipeline exports to Mexico continued to grow throughout 2016, making up 87% of all U.S. natural gas exports. In May 2016, the Sabine Pass liquefaction terminal began commercial operations in the Gulf Coast to export liquefied natural gas (LNG). The expansion of the Panama Canal in July 2016 further aided export ability by reducing time and transportation costs to key markets in Asia and the west coast of South America.”
Looking ahead, the EIA recently estimated: “Natural gas pipeline exports increased by 1.0 Bcf/d (21.7%) to 5.9 Bcf/d in 2016, largely because of rising exports to Mexico. EIA expects pipeline exports of natural gas to continue rising because of growing demand from Mexico’s electric power sector and because of flat natural gas production in Mexico. Gross pipeline exports are expected to increase by 0.1 Bcf/d in 2017 and by 0.4 Bcf/d in 2018. Liquefied natural gas (LNG) exports increased from almost zero in 2015 to an average of 0.5 Bcf/d in 2016 with the startup of Cheniere’s Sabine Pass LNG liquefaction plant in Louisiana, which sent out its first cargo in February 2016. LNG exports are expected to average 1.4 Bcf/d in 2017 as Sabine Pass ramps up capacity in the middle of the year. In 2018, LNG exports are forecast to average 2.6 Bcf/d. The 2018 growth is driven by the expected start of Cove Point LNG in Maryland in December 2017 and new projects at Cameron LNG and Freeport LNG on the Gulf Coast during the second half of 2018.”
On the issue of natural gas exports to Mexico, FuelFix.com has reported: “Natural gas generated 54 percent of Mexico’s power in 2015, up from only 34 percent 10 years before. Natural gas is also expected to account for 60 percent of the additions to Mexico’s power grid over the next three years. As a result, Mexico’s demand for natural gas is expected to greatly increase, and that demand will be largely met by imports from the United States, according to the Energy Department.”
Crude Oil and Petroleum Products
As for crude oil and petroleum products, U.S. exports jumped by 273 percent from October 2007 to October 2016. Regarding crude exports, the EIA noted in August 2016: “The number of countries receiving exported U.S. crude oil has risen since the removal of restrictions on exporting U.S. crude oil in December 2015… Based on the latest available data, U.S. crude oil exports averaged 501,000 barrels per day (b/d) in the first five months of 2016… From 2000 to 2013, U.S. exports rarely surpassed 100,000 b/d. By 2015, the United States was exporting 422,000 b/d to Canada and a total of 26,000 b/d to five other countries.”
U.S. as Net Energy Exporter
In its Annual Energy Outlook 2017, the EIA projected: “The United States has been a net energy importer since 1953, but declining energy imports and growing energy exports make the United States a net energy exporter by 2026 in the Reference case projection.”
A December analysis from Platts.com added some interesting points to the outlook:
• “US crude exports could pick up in 2017 as many analysts have forecast a wider Brent/WTI spread. US crude production is already on the rise, and will likely face fewer hurdles under a Trump administration, especially at a time when much of the rest of the world’s producers are planning, in theory at least, to curtail output.”
• “[T]he ability of US producers to apply technology makes shale production likely even more profitable going forward. Energy economist and long-time oil market analyst Philip Verleger has suggested that technological improvements in the shale patch will eventually ‘swamp’ the deleterious effects of cumulative production. ‘Improving technology is offsetting traditional factors by a ratio of 10 to 1,’ Verleger said in a recent report. ‘This means that wells not drilled in 2016 can be drilled in 2017 for 70 or 80% of the costs that might have been incurred in in 2016.’”
• “A major breakthrough likely to boost US crude export capabilities was the start up in November of Occidental Petroleum’s 300,000 b/d-capable Ingleside Energy Center Terminal in Corpus Christi. The terminal is currently only capable of loading Aframax-sized cargoes, but plans are underway to deepen and widen the Corpus Christi channel, leaving the door partly open to possible Suezmax-sized cargo loadings.”
Small Businesses Dominate the Energy Sector
Finally, keep in mind that all major energy sectors of our economy are largely populated by small businesses. Consider that in 2014 (latest Census Bureau data):
• 90.2% of employer firms among oil and gas extraction businesses had less than 20 employees;
• 77.5% of employer firms among drilling oil and gas wells businesses had less than 20 workers;
• 80.7% of employer firms among support activities for oil and gas operations businesses had less than 20 employees,
• 59.2% of employer firms among oil and gas pipeline and related structures construction businesses had less than 20 workers,
• 52.9% of employer firms among oil and gas field machinery and equipment manufacturing businesses had less than 20 employees,
• 61.5% of employer firms in the coal mining sector had less than 20 workers,
• 67.3% of employer firms among support activities for coal mining businesses had less than 20 employees,
• 53.9% of employer firms among petroleum and coal products manufacturing businesses had less than 20 employees.
So, expanding energy export opportunities means expanding opportunities for small businesses and their employees. Increased entrepreneurial opportunities and quality job creation will also result from this positive activity. Let’s keep it going.
Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council.
Keating’s latest book published by SBE Council is titled Unleashing Small Business Through IP: The Role of Intellectual Property in Driving Entrepreneurship, Innovation and Investment and it is available free on SBE Council’s website here.