Morris R. Beschloss 2014-10-03 01:06:50
At the top According to the BP 2014 statistical world energy review, the U.S. has achieved world-leading natural gas production by reaching a new all-time-high of 328 billion cubic ft. Per day. World usage of natural gas is about 24% of all primary energy consumed, behind oil’s 33% and coal’s 30%. Over the past five years, U.S. natural gas production has grown more than 20%. This news obviously is due to the capturing of natural gas as a byproduct of the massive shale expansion as the fracking revolution seems to continue its unprecedented growth. No other global energy-producing nation has come close to matching U.S. production gains while leapfrogging Russia in 2009 along with Qatar and Iran — previous global natural gas leadership aspirants. In 2013 U.S. production accelerated in earnest by achieving 20.5% of the global natural gas supply. Russia is the lagging runner-up. Iran, in third place, has trailed far behind, while Canada has attained the fifth-place position by closing in on Qatar. While the U.S. and Iran consumed about as much as they produced, Russia produced 50% more than its internal consumption. While Russia has become Europe’s No. 1 gas supplier, it also recently signed a $40 billion, 30-year deal that will tap into Russia’s yet-to-be developed Siberian oil/gas reserves buried deep under that region’s tundra. While the U.S. natural gas production leadership position is undisputed, America trails in fifth place in proved natural gas reserves. This may be remedied if and when the U.S. is able to export the 90% of “shale potential” that awaits state and federal approval. The latter is mostly located in government-owned areas that cover almost twothirds of the vast acreage of the 50 states and U.S. territories. Iran holds the top spot for proved reserves at 18.2% of the world total with Russia just behind with 16.8% of global proved reserves. These are followed by Qatar and Turkmenistan with the U.S. trailing behind. At 2013 production rates, the U.S. has 13.6 years of proved reserves, while Russia’s potential reserves are generally unknown due to the as-yet-undetermined amounts that will become available as the Russo/Chinese 30-year agreement begins its long-term development with Siberia. America’s greatest problem in becoming an active global “player” depends on how fast and voluminously the U.S. can complete its export terminals and convert to liquid natural gas for global export shipments. Pipeline growth need When Kinder Morgan recently announced the consolidation of its dormant oil and gas pipeline business in a $44 billion deal, that corporation telegraphed the desperate need for the growth of nationwide pipelines to put this badly languishing infrastructure in sync with the shale fracking revolution both geographically as well as the need for upgraded piping-system component material. It also is an acknowledgment that President Barack Obama’s $300 billion government infrastructure initiative, which would encompass fossil-fuel piping expansion, has no chance of getting passed in Congress, amplified by a lack of public support still heavily smarting from the increasing Obamacare resentment. Neither Congress nor America’s voters have any more of an appetite for such new taxpayer-subsidized adventures. In consolidating Kinder Morgan’s sister operations into a centralized approach, founder and current corporate CEO Edward Kinder likely will move to bring some competitive piping systems, comprising 80,000 miles of pipelines, into the Kinder Morgan fold, thereby using the private enterprise approach. Although Kinder Morgan previously was a runner-up to the energy industry’s dominant Master Limited Pipeline Partnership, Enterprise Products Partners (with a net worth of $70.54 billion), this consolidation objective puts the various Kinder Morgan individually-owned units under one roof and likely will double Kinder Morgan Energy Partners’ current $37.10 billion value, thereby evolving it into the top tier of the world’s leading energy companies. Such a powerful consolidation, sure to attract smaller U.S. pipelines, regional and even Canadian units, will give Kinder Morgan the overall financial strength with which to gain the lobbying backing needed to gain public support against the climatological purists. These purists will try to block fracking growth through scare tactics and Environmental Protection Agency regulations aimed at impeding this ultimate transportation capability. This has led to the increasing dependence on rail transportation, which itself has carved out major profit opportunities for its investors despite the embarrassment of inflammatory accidents, especially within major cities in the U.S. and Canada. A highly centralized and shrewdly managed pipeline super-structure also will serve to accelerate fracking opportunities on government lands and elicit further hospitable shale opportunities of which less than 10% of America’s production potential of oil and gas has yet to be utilized. The months ahead should envision the salutary impact the Kinder Morgan approach will almost surely provide. U.S. refineries set records According to the highly reliable U.S. Energy Information Administration, America’s 140- plus refineries were hitting record volume performance in mid-July, a pace that is continuing as the 2014 summer moves into even higher potentials as fall approaches. While the highly controversial Trans-Canada XL oil pipeline continues to hang in limbo with the November 4 midterm election beckoning, the additional production and revenue contributions of America’s impressive fracking acceleration is pushing U.S. refineries to capacity limits. These refineries, which expanded onsite in the past five years in absence of additional “greenfield” startups due to their exorbitant costs and increasingly lengthening years of completion, continue to accelerate their generation of revenues and derivative output. With the cost spread between light-sweet crude purchases from fast-growing shale production and the Brent crude world selling prices providing a comfortable multi-dollar spread, U.S. refineries are generating record sales as well as production and profits. Also, with no restriction on export shipments, refinery derivatives such as gasoline, heating oil, jet fuel and diesel are becoming an increasing percentage of the volume generated by U.S. refineries, especially those located in greater Houston and southern Louisiana shipping to Mexico, Central America, and lately even into South America. In anticipation of the fracking technology greatly expanding from its current base, which has only reached 10% of potential U.S. availability (including current off-limits government-held lands), a large segment of existing refineries are mapping plans for internal expansion. This is particularly significant as major piping systems are in the project stage to tie in with refineries and ultimate end-use facilities, especially for the purpose of power generation, as well as servicing eventual retail outlet providers. Oil, natural gas expansion While analyzing the basis of U.S. crude oil growth, projected eventually to expand well past the 10 million barrel-per-day mark approached by conventional drilling more than 50 years ago, it is incumbent on future projections to be based on current results. Two major evidential bases of this growth are the Permian Basin spread over Texas, New Mexico and parts of Mississippi and Oklahoma, along with the Marcellus Shale, which encompasses Pennsylvania, New York and smaller parts of neighboring Mid-Atlantic states. According to the U.S. Energy Information Administration, the Permian Basin shale, in particular, has accelerated its productive growth well beyond previous expectations. It has increased from a low point of 850,000 B/D in 2007 to 1.35 million B/D by the end of 2013. Although unofficial at this point, the Permian’s 1.5 million B/D output has been breached as the 2014 halfway mark has passed. Six formations within this sprawling basin have provided the bulk of this output, providing 60% of the increase. While Permian was one of the biggest conventional oildrilling sites in Texas during the heyday of traditional drilling, it had been pretty well given up on as “tapped out” before the technological fracking breakthrough barely seven years ago. Also distinguishing itself in an area long ago given up on since the conventional drilling days is Marcellus. Currently, its growth has been the spearhead of $42 billion in various new project stages, especially in support of the expanding power industry, which is the basis of 461 active and unconfirmed projects in Pennsylvania alone. These could eventually exceed the $50 billion mark. Construction on 224 projects worth $8.81 billion is expected to be in viable forward motion before the end of this year. At this stage of project development nationwide, and the largely untapped shale exploration, the oil and natural gas production awaiting the U.S. is only curbed by the nation’s political leadership. The U.S. has the potential to be a dominant fixture in the world’s fossilfuel (coal, oil and natural gas) and renewable supplement (solar, geothermal, wind, ethanol) energy-development segments. Perhaps the turbulent and destructive geopolitical trends in the Middle East will force the issue when a successor administration makes these decisions after the 2016 presidential elections. Veteran industry analyst and writer Morris R. Beschloss is the industrial PVF columnist for Supply House Times and the American Supply Association’s industry analyst. Beschloss, whose career in the industrial pipe, valve and fittings sector spans more than five decades, was the recipient of the 2012 ASA Fred V. Keenan Lifetime Achievement Award.
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