All’s Fair in Love and War: America’s Energy Advantage

Marcellus, Bakken, Eagle Ford, Permian, Niobrara and Haynesville.

Even to the most casual observer, some of these names do have a certain familiar ring about them. And they should, as they are among the dominant shale plays in the United States. And they have set the world on its head.

Developed technologies made it commercially viable to extract oil and gas from shale rock and largely because of it, the U.S. will become the world’s top energy producer by 2015, according to the International Energy Agency, supplanting both Russia and Saudi Arabia.

To which I will quote that respected industry observer, known for his piercing observations and in-depth analytical thought, Gomer Pyle: “Shazam!”

The IEA also predicts the U.S. will become self-sufficient in its energy needs by 2035. That is still a good ways off, but I never thought that was possible or likely despite of the many years the blowhard rhetoric emanating from Washington that we should seek energy independence. But it would appear that reality is truly within our grasp.

Again, this is all because of what we are sitting on and the fact that we have developed better technologies in this country to unlock the oil and gas from the shale rock.

Breaking Our Addiction

Now I would bet you that our predicted future of independence or even less dependence gives OPEC, the oil cartel founded in Baghdad and made up of Arab countries where the U.S. will never win a popularity contest, a degree of pause. I can only hope.

As someone who remembers the long lines at gas stations during the 1973 oil crisis, I shed no tears for OPEC, as they have shed none for us when they literally had us over a barrel. They still do to some degree, as we remain the world’s biggest oil-consuming nation and the largest importer of crude oil. But the point is that we are breaking our addiction to foreign oil because of what we are doing on the home front.

Indeed, the U.S. produced more crude oil in October than it imported for the first time since early 1995, as domestic shale oil output continued to surge and our consumption (much of it due to conservation and more energy efficient technologies employed) remained relatively flat.

Net crude oil imports in October fell to 7.57 million barrels a day, down from 7.92 million barrels in September and down 8 percent from the year before, according to the Energy Information Administration.

The Million Barrels Club

Meanwhile, the Bakken Shale, is about to reach a milestone: pumping a million barrels of crude a day, according to the U.S. Energy Information Administration.

The EIA says oil companies in the Bakken, which is located primarily in North Dakota, will reach the million-barrel milestone in December, up from an estimated 976,000 barrels in November. Drillers are spending about $16 billion in the Bakken this year, according to research firm Wood Mackenzie.

The Eagle Ford Shale in South Texas, hit the million-barrels-a-day mark back in May of this year, according to the EIA data. The Permian Basin — the massive field in Texas that’s been the foundation for U.S. oil production for decades – got there in May 2011.

The Biggest Turnaround Story

This mega-shift in energy production, spurred on by advances in hydraulic fracturing technologies, happened pretty quickly. Five years ago, U.S. oil production hit a 62-year low. Since then, domestic production has increased by more than 50 percent.

As a former business journalist, I view this as the biggest business turnaround story in my life. And it bodes quite well for the long-term growth prospects for the U.S.

Today, as a site selection/economic development consultant, I am constantly reading and talking to business people about new investments and resources dedicated to energy production and not just in the oil patch.

Clean Coal in Mississippi?

I was very much surprised to learn last week of a coal-fired power plant now under construction by the Southern Co. in Kemper County, Miss. Frankly, I wasn’t so sure that we would ever see any new coal-powered plants to be built again because of stringent EPA standards now in place. But this new plant being built may prove that there actually is such a thing as clean-coal technology.

The not-so-good news is the 582-megawatt plant 30 miles north of Meridian is considerably over budget, to the tune of about $1 billion according to some reports. I have read conflicting numbers on what the total cost might be. The Southern Co. says $4 billion, but Bloomberg Businessweek is pegging the number closer to $5 billion.

Whatever number is correct, the Department of Energy estimated back in April that a utility buying a plant with the new technology would pay double the price of a conventional plant. The price of new pioneering technology often does not come cheap.

When finished by the fourth quarter of 2014, the plant, to be operated by Southern Co. subsidiary Mississippi Power, will use a process known as coal gasification, where it burns gas extracted from pulverized coal. That in itself is not a new technology, but the Kemper plant — which literally sits atop of a lignite coal seam that will serve as its source of fuel for an estimated 40 years — will be the first to remove carbon dioxide. The gas will be sold to Texas-based Denbury Resources, which plans to inject it down into wellheads to unlock gas and oil from the shale rock.

Worse Storms to Come

It is not surprising that some environmentalists consider the carbon capture and sequestration (CCS) technology to be used at Kemper as not good enough. There are some critics who believe we should nevermore touch coal as a source of fuel because of greenhouse emissions.

Certainly, the environmentalists are right to be concerned as the body of scientific evidence does show that climate change is a real thing, that the planet and its oceans are indeed warming, at least partly due to greenhouse emissions created by nations worldwide.

Last week, Typhoon Haiyan in the Philippines, with sustained winds between 190 and 195 miles per hour, killed thousands.  Many scientists are looking at climate models that suggest that intensity limits will keep rising with the potential for more devastating storms due to global warming.

So what do we do? Well, the truth is that we cannot and will not abandon fossil fuels any time soon and nor should we. But if we can burn cleaner and more efficiently through applied technologies, and supplement our energy needs with renewables (solar and wind), then we stand a good chance of reducing emissions all the while reaching that energy independence that we seek. I submit that those are not conflicting goals.

Billion Dollar Projects on the Horizon

The various industries of energy will play a huge role in the future of local economies throughout this country. Economic development organizations should take a long and hard look at this as there will be likely job creation and in some places it will be considerable.

Billion-dollar energy projects are now being announced with some frequency in Texas and Louisiana in support of this burgeoning natural gas boom. Just one example is Houston-based Cheniere Energy. The company, which is now in the process of building a liquefied natural gas export facility in Louisiana, also hopes to build a similar facility in Corpus Christi, Texas, at a cost of about $12 billion.

Cheniere’s Sabine Pass facility in Louisiana was the first to receive approval from the U.S. Department of Energy to ship natural gas to countries with which the U.S. doesn’t have free trade agreements. The company is seeking permits to export gas from additional facilities planned at Sabine Pass, and from Corpus Christi.

There is debate as to whether it is a good idea for the U.S. to be exporting natural gas abroad, rather than hording and using it as a resource solely here at home. The chemicals and steel industries, which uses a tremendous amount of gas in the manufacturing process, questions whether the cost of natural gas might significantly rise if exports take place.

Not surprisingly, the oil and gas industry says that will not happen. Proponents of gas exports contend that increased gas production here in the states could fuel a response to rising international demand and keep worldwide prices relatively low. As a former skeptical newspaperman, I am not sure I buy that.

When You Got an Edge

However this plays out and wherever the truth lies, the good news is that U.S. manufacturers do now have a significant advantage in terms of energy costs in comparison to their counterparts in Europe and Asia.

And that in itself should drive at least some foreign direct investment to the U.S., especially so if a company intends to sell a majority of its goods or services in this market.

European companies, facing low demand for their products and rigid labor markets, are paying three times more natural gas and their electricity costs are double of that in the U.S. Prices for U.S. natural gas are currently around $3.70 per 1 million BTU, compared with just over $16 per in Europe and Asia.

In business as in life, when you got an edge, you take it. All is fair in love and war.

I’ll see you down the road.

Dean Barber is the president/CEO of Barber Business Advisors, LLC, a site selection and economic development consulting firm based in Plano, Texas. If your company needs an optimal location for future operations anywhere in North America, we can help. If your community needs to improve its competitive standing, we can help. All requests for information are considered confidential.

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