PROTECTING SMALL BUSINESS, PROMOTING ENTREPRENEURSHIP

Expanding International Opportunity for U.S. Natural Gas

By at 4 August, 2016, 2:09 pm

New reports show the oppotunity

Energy entrepreneurs in the U.S. have dramatically altered the global energy market. When it comes to natural gas, expect more of the same. This is all positive news for small businesses, quality job growth, business growth and our economy. That is, as long as policymakers “don’t muck things up.”

by Raymond J. Keating-

The U.S. natural gas story has been an incredible tale of entrepreneurship, private investment and innovation transforming an industry. Thanks to advancements in areas like horizontal drilling and hydraulic fracturing, the U.S. over the past decade or so has risen to become the world’s largest natural gas producer.

And even with dramatic price declines, greater opportunity lies ahead, as long as U.S. policymakers don’t muck things up.

Specifically, big possibilities lie ahead in the international marketplace. Consider key points from the International Energy Agency’s 2016 Medium-Term Gas Market Report.

First, the IEA expects U.S. natural gas production to be flat in 2016 and 2017. It is, however, noted: “Given the drastic fall in both oil and gas prices, stagnation in output must be looked at as a remarkable achievement and a testament to the technological and financial resilience of the US shale industry.” And overall, from 2015 to 2021, IEA expect U.S. natural gas production to grow, though at a slower pace than in recent times. Most striking, the IEA projections have U.S. natural gas production over this period “accounting for one-third of global incremental production.”

Second, expanded global LNG export capacity in coming years will be almost completely about the U.S. and Australia: “Global LNG export capacity is forecast to increase by 45% between 2015 and 2021, 90% of which originates from the United States and Australia.”

Third, the downside in the IEA report focuses on lower prices, and stagnant or sluggish demand limiting investment and production gains. In fact, demand concerns tied to worries over the economy are legitimate. However, as for the price factor, while clearly a genuine worry, the industry has been amazing in advancing technology and reducing costs. For example, as reported by Stateimpact.npr.org on August 1, “Natural gas production in Pennsylvania is up despite a drop in the number of new wells. The Department of Environmental Protection released its 2015 annual oil and gas report on Monday, detailing such things as the number of wells drilled, locations, and inspections. The state’s shale wells produced 4.6 trillion cubic feet of natural gas in 2015, marking a continued increase since the start of the shale gas boom. This happened despite a drop in newly drilled wells. In 2015, shale producers drilled 785 wells, about half the number developed in 2014, which was 1,372.”

Energy Entrepreneurs Going Global

Important additional points on the international opportunities were made in a recent Bloomberg report.

First, the role of U.S. energy entrepreneurs, businesses and workers in changing the international marketplace was driven home: “Shale drillers from Pennsylvania to Texas flooded the U.S. with so much natural gas over the past decade that prices slid to a 17-year low. Now they’re going global, with the potential to upset markets from London to Tokyo. The U.S. began shale gas exports by sea this year and is projected by the International Energy Agency to become the world’s third-largest liquefied natural gas supplier in five years. Gas will challenge coal at European power plants and become affordable in emerging markets, where prices have been high and supplies limited, according to the IEA and Goldman Sachs Group Inc.”

Second, regarding specifics on LNG export facility capacity, “The annual capacity of liquefaction plants, where gas is chilled and compressed for shipping, grew to 415 billion cubic meters in 2015 and will expand to 595 billion by 2021, according to the energy agency.”

Third, as for U.S. market share: “Cheniere Energy Inc. has sent 19 tankers of the liquefied gas abroad from its Sabine Pass terminal in Louisiana. By 2020, five terminals will be operating on the U.S. Gulf Coast and in Maryland.  Global export capacity will surge 45 percent and the U.S.’s share will jump to 14 percent from nothing, according to Energy Aspects Ltd.”

Fourth, shipping infrastructure changes play into the market as well: “The widening of the Panama Canal is going to have an impact as well. It’s now able to handle most of the world’s LNG tankers and will reduce time and costs for U.S. cargoes to destinations such as Chile and Japan… By 2021, the U.S. may dispatch as many as 550 tankers a year through the waterway, the U.S. Energy Information Administration forecasts.”

Small Business Benefits

Of course, it also must be noted that increased energy investments and production thanks to expanded international opportunities are a boom for the small businesses that overwhelmingly populate U.S. energy sectors. Consider that 90.7% of employer firms among oil and gas extraction businesses, 78.1% of drilling oil and gas wells businesses, 81.5% of firms among support activities for oil and gas operations businesses, 60.5% of oil and gas pipeline and related structures construction businesses, and 54.7% of firms among oil and gas field machinery and equipment manufacturing businesses have less than 20 workers.

Growing opportunities on the natural gas front also speak to several fundamental policy points. First, anti-carbon-based-energy taxes and regulations only serve to undermine U.S. growth, businesses and jobs. Second, anti-free-trade policies – such as opposing the Trans-Pacific Partnership and seeking to rip up older trade accords – mean reduced opportunities for U.S. entrepreneurs, workers and businesses, and higher costs for U.S. consumers. And third, bureaucratic delays in approving U.S. LNG export facilities make absolutely no economic sense, and rest only on radical efforts to stop the use of all carbon-based energy resources.

As noted at the outset of this piece, as long as policymakers don’t muck things up, U.S. opportunities for growth in the international energy marketplace are tremendous.  This will boost the U.S. economy, quality job growth, business startup and growth and provides important geopolitical benefits for America and our allies across the globe as well.

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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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