U.S. Energy Renaissance

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Posted on Feb 4, 2020

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GitHub |  R Shiny App |  Quandl 

The App and its Source of Data

The Shiny App is an interactive visualization tool on different time series of U.S. natural gas metrics. The app consists of four tabs composed of important macro metrics (Trade, Production, Supply, and International Reserves). Some of the datasets are broken down by natural gas product in order for the user to extrapolate which are leading/lagging segments. The financial datasets are sourced from an API pull from Quandl , which is a leading economics and alternative integrated data platform. 

 

U.S. Shale Revolution 

The U.S. Shale gas energy revolution commenced in 2006 when horizontal drilling and hydraulic fracturing technologies enabled exploration & production energy companies to tap into enormous shale rock formations and extract oil and natural gas. As a result, oil and natural gas production in the U.S began to increase at unprecedented levels by mid-2007. As onshore natural gas production exponentially soared, WTI was trading for over $130 per barrel. It was a matter of time and logic for oil exploration & production companies to apply the same drilling technologies to commodity-rich shale formations and extract valuable oil.

 

Energy Independence is Near the Horizon

By early 2009, after the height of the credit crisis, WTI found a bottom just under $40 per barrel (after falling from its July 2008 historic high of $145). Conversely, natural gas was trading at $8/MM BTU, but was just at the beginning of what today is a decade-long downtrend in natural gas prices. To illustrate this point, there were 1,500 rigs dedicated to natural gas extraction in January of 2009 and approximately 400 rigs dedicated to oilfields. Today, that relationship has completely reversed itself as there are 675 oilfield rigs and 112 natural gas rigs in the U.S market. The enormous amount of proven natural gas supply discovered since 2007 has suppressed natural gas prices, and has lead industry experts to believe natural gas prices in the U.S will continue to be pressured until the export facility infrastructure has reached developed stages. Today, only a handful of companies have been approved by the Department of Energy to export LNG (liquefied natural gas). Cheniere Energy (NYSE: LNG) was the first company to be approved and operates the Sabine Pass LNG Liquefaction Terminal in Louisiana. The project took over 5-years to buildout and required ~ $17.5 billion in financing. 

Liquified Petroleum Gas

While LNG exportation infrastructure is still in the beginning phases, liquefied petroleum gas (blend of propane and butane) export has no government restriction in the United States. Similar to natural gas, LPGs trade much cheaper in the United States than in higher-demanding regions such as Europe and Asia. Even after accounting for day rates and shipping costs, the spread between U.S and its European counterparts oscillates between $200 and $500.

Besides the major price discrepancy, LPG exportation is attractive for two reasons: 1.) LPG is easily transportable and 2.) Increasing global demand. Unlike natural gas, LPGs do not require complex liquefaction facilities, which is where the process of converting natural gas into liquefied natural gas (at a temperature of -260 °F through super-cooling) is executed in order to be transported safely in tankers. The enormous glut of natural gas supply and the ease of exportation have led to soaring LPG exports in the U.S.

Global Adoption

Japan, Korea, India, and China represent over 40% of the global LPG imports. According to Bloomberg, Japan may increase its US LPG imports to 20% by 2022. Korea (9% of global imports) and Poland (3% of global imports) use LPG-powered vehicles. 40% of Turkey’s passenger cars are powered by liquefied petroleum and according to Taner Yildz, Turkey’s Minister of Energy and Natural Resources, Turkey is aiming towards tripling the amount of LPG vehicles by 2025. The lower price that LPG commands in comparison to gasoline and diesel will lead to higher mandates for LPG powered vehicles. For example, gasoline in Greece accounts for €1.60-1.80 per liter ($8.70 per gallon). Today, LPG sells for approximately €0.85 per liter, about half the price of gasoline. Natural gas is slowly evolving as the primary global fuel with increasing penetration in transportation and domestic application markets. By 2040, natural gas is expected to be on par with crude oil in the global energy landscape. 

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