BlackRock’s Allonby sees energy boom rippling through the US
Poppy Allonby, managing director and co-portfolio manager of BGF World Energy fund and BGF New Energy fund, comments on how the US’s shale boom will effect local and global energy markets.
An energy boom is rippling through the US, the decades of rising consumption and falling supply are reversing. Natural gas production is hitting new highs, and oil production is at its greatest since the late 1990s. Energy consultant Wood Mackenzie is one of many industry experts forecasting that the US may become energy independent by 2030.
Just four years ago, companies were spending billions of dollars to build liquefied natural gas (lng) terminals to import natural gas. today these terminals are being re-engineered for export. Much has been written about the US ‘shale boom’. Hollywood has even got in on the act. however, less has been said about its wider implications. The boom is having a transformational effect on communities and industry, it will improve the competitiveness of the US economy versus those of Asia and Europe, and may well alter the balance of global power. the US economy is being rebooted and recharged.
North America as a whole will benefit from cheaper energy costs and the related job creation. Yet some industries will enjoy structural advantages while others will suffer. Those who appear well positioned include low cost producers of oil and gas, service and technology providers, select refining assets, and the infrastructure, petrochemicals, fertiliser and steel sectors. Meanwhile coal producers and high cost oil and gas producers appear structurally disadvantaged, whether domestically or in Asia and Europe. As the IEA recently stated ‘this positive crude and product ‘supply shock’ could prove as transformative for the oil industry as was the rise of Chinese demand during the past 15 years.’ The implications of this are potentially huge and investment opportunities abound.
• The US is experiencing an energy/’shale’ boom
o Oil up by 23% over the past three years
o Gas up by 32% over the past seven years – reaching new heights.
• This is set to improve the competitiveness of the US economy versus those of Asia and Europe
o Oil and gas in the US trade well below global prices with the latter in particular trading at around a third of the price of that in Europe or Asia
o US crude oil prices are 92% of the global Brent benchmark, and power prices paid by ordinary Americans are half of those paid by most Europeans
• The effect on American regions can be great:
o 10 years ago, the sleepy town of Williston, North Dakota was an agricultural community with little more than 10,000 residents.
o Rich in unconventional oil resources, the oil boom has led to the population trebling, low unemployment (3%) and the highest wage inflation (13%) in the country.
o It now plans to spend $625m on infrastructure over six years to keep pace
• The American Chemical Council estimates that companies plan $82.5bn of spending on new chemical facilities along the Gulf and Eastern coasts, creating a further $194bn of new economic activity including 1.2m jobs and $20bn in new taxes. The full impact of these investments will not be felt for a decade
• US energy independence could have major implications for geopolitics:
o According to the EIA, 50% of US crude imports originate from OPEC member countries
o As the lifeblood of its economy, it is no wonder that oil flow has influenced American diplomacy