PROTECTING SMALL BUSINESS, PROMOTING ENTREPRENEURSHIP

U.S. Energy Forging Ahead: Good News for Small Business

By at 9 June, 2017, 8:58 pm

Small businesses overwhelmingly populate key energy sectors, and the positive news and policy trends will continue to fuel growth

by Raymond J. Keating-

In an April analysis, SBE Council noted recent reports spelling out some good news on the energy front thanks to investment and innovation in that sector. Since that analysis, there have been more positive developments.

Consider the following reports and examples:

• Bank lending and investment in the energy sector back in growth mode. It was noted in a June 8 Houston Chronicle report: “Bank lending that nourished drillers in the nation’s first surge of shale oil has picked up again as oil prices and profits recover, but is likely to remain well below the go-go days of the last boom even as hundreds of drilling rigs and thousands of workers pour into West Texas and Oklahoma. Lenders like JPMorgan Chase and Wells Fargo, as well as some Houston banks, have boosted the size and number of loans fueling the U.S. oil industry’s rebound, pouring more than $40 billion in new or amended lines of credit into the nation’s energy companies in the first three months of the year. Alongside banks, private investors and capital markets have put up another $41 billion in debt and equity in a flurry of deals that mark a reversal of fortune in the U.S. energy industry…”

• U.S. export growth. LNG (liquefied natural gas) exports are expanding, and even presenting issues of port traffic jams. Assessments vary on the extent of emerging traffic issues. But the key point is: these are the types of problems one wants to deal with and rectify, as opposed to a lack of economic activity. Bloomberg reported on June 8: “A boom in natural gas exports from the U.S. Gulf Coast is raising the prospect of traffic jams at one of America’s busiest ports. Weather delays from fog and storms are nothing new at the Houston Ship Channel, which links the prolific oil and gas fields of Texas and Louisiana to the rest of the world.” The report went on later: “Sixteen months after the first cargo of gas from U.S. shale fields headed overseas, the nation is on the path to becoming a net exporter of the fuel for the first time in decades. The supply surge has created the need for more and bigger roads, pipelines and waterways, prompting a $5.3 billion expansion of the Panama Canal to accommodate the massive tankers used to haul LNG. And with about 20 export terminals already approved or proposed for the Gulf Coast, even more ships are on the way.”

• U.S. producers foiling OPEC. Meanwhile, as OPEC tries to manipulate energy markets, U.S. producers are stepping in to undermine or foil such efforts. As noted in June 7 UPI.com report:

Karr Ingham, an economist with the independent Texas Alliance of Energy Producers, said U.S. oil was taking up the slack now that exports were allowed under U.S. law.

“Producers in Texas and across the U.S. will gladly take the market share given up by nations that attempt to manage oil markets and prices by centralized decisions to manipulate production,” he said in an emailed statement.

The U.S. Energy Information Administration put the four-week moving average for crude oil exports at 927,000 barrels per day, more than double the average for the same period last year. That means the United States is exporting about as much oil as is sidelined by the OPEC-led production agreement.

U.S. oil is becoming competitive in the Asian market in part because of the discount for West Texas Intermediate, the U.S. benchmark for the price of oil, against the Persian Gulf benchmark, Dubai. In early Wednesday trading, Dubai crude had a 50 cent per barrel premium over WTI.

• U.S. remains top global producer. As for the larger picture, it was noted that U.S. global leadership in oil and natural gas production continued in 2016. As reported by OilandGas360.com on June 7: “Despite the lowest commodity prices in 13 years, U.S. oil and gas production in 2016 continued to outpace all other nations, according to a note from the EIA. The United States has been first in the world in natural gas production since 2009, when American output surpassed Russia. U.S. production of “petroleum hydrocarbons” (a catch-all term the EIA uses to account for crude oil, condensate, bitumen, natural gas plant liquids, biofuels and others) exceeded that of Saudi Arabia in 2013.” Looking ahead, it was noted: “The U.S. is likely to remain the foremost hydrocarbon producer in the future as well, as shale companies continue to ramp up activity.”

• U.S. growth ahead in terms of oil, natural gas, and yes, coal. On June 6, the EIA released its latest Short-Term Energy Outlook. It was reported that the EIA expects U.S. crude oil production to hit record levels in 2018: “U.S. crude oil production averaged an estimated 8.9 million b/d in 2016. U.S. crude oil production is forecast to average 9.3 million b/d in 2017 and 10.0 million b/d in 2018. The 2018 forecast exceeds the previous record level of 9.6 million b/d set in 1970.”

And as for natural gas, the EIA noted: “U.S. dry natural gas production is forecast to average 73.3 billion cubic feet per day (Bcf/d) in 2017, a 1.0 Bcf/d increase from the 2016 level. This forecast increase would reverse a 2016 production decline, which was the first annual decline since 2005. Natural gas production in 2018 is forecast to be 3.3 Bcf/d above the 2017 level.”

For good measure, there was some good news on the coal front: “Coal exports for the first quarter of 2017 were 58% higher than in the same quarter last year, with steam coal exports increasing by 6 million short tons (MMst). Coal producers that have completed bankruptcy reorganizations and companies that purchased bankrupt assets have increased both exports and production in 2017. EIA expects growth in coal exports to slow in the coming months, with exports for all of 2017 forecast at 72 MMst, 11 MMst (19%) above the 2016 level. The increase in coal exports contributes to an expected 8% increase in coal production in 2017.” Another increase is expected for 2018 as well. These come after a dramatic decline in production from 2008 to 2016.

As pointed out in our April analysis, “Private-sector investment that drives innovation and growth always is a win-win for the economy, as has been made crystal clear by what has occurred and is ongoing in the oil and natural gas industry. And keep in mind that much of this occurred during the Obama administration, which was overtly hostile towards carbon-based energy. Imagine what can happen under a rational, rather than hostile, federal regulatory regime.”

That shift in policymaking is under way. For example, President Trump signed an executive order in late March reining in some burdensome energy regulations inflicted by the Obama administration. That executive order included the following key points:

• “… directs the Environmental Protection Agency to suspend, revise, or rescind four actions related to the Clean Power Plan that would stifle the American energy industry.”

• “…lifts the ban on Federal leasing for coal production.”

• “… lifts job-killing restrictions on the production of oil, natural gas, and shale energy.”

• “…directs all agencies to conduct a review of existing actions that harm domestic energy production and suspend, revise, or rescind actions that are not mandated by law.”

• “…directs agencies to use the best available science and economics in regulatory analysis, which was not utilized by the previous administration.”

• “…disbands the Interagency Working Group (IWG) on the Social Cost of Greenhouse Gases.”

(For more on the Trump executive order, read SBE Council’s analysis the day after it was released.)

And of course, the Trump administration reversed the Obama administration by approving both the Keystone XL pipeline and the Dakota Access pipeline.

This is all good news for the small businesses and their employees who overwhelmingly populate key energy sectors. According to Census Bureau data (2014): 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, and 52.9% of employer firms among oil and gas field machinery and equipment manufacturing businesses had less than 20 employees.

There’s much more work to do in terms of reining in excess regulations. And as regulatory relief and reform continue, that will expand incentives for further investment and innovation in the energy sector, and elsewhere.

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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.

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