The Global, Positive Impacts of the U.S. Energy Renaissance

Mark Green
Posted December 7, 2016

It’s hard to overstate the importance of America’s fracking-led energy renaissance – to our economy, individual households, energy security, the environment and to America’s ability to shape global events for the good. That last point is being underscored right now.

First, OPEC’s recent decision to cut output is widely being seen as a win for U.S. shale producers. If OPEC’s move increases market demand, shale drillers are well-positioned to respond because of undrilled but proven leases and their demonstrated production efficiency and general nimbleness. Jason Bordoff, former energy adviser to President Obama and founding director of Columbia University’s Center on Global Energy Policy:

While production has declined about 1 million bpd from its April 2015 peak, the industry has become remarkably more efficient. The Dallas Federal Reserve estimates that the breakeven cost of U.S. shale has fallen from $79 per barrel in 2014 to $53 today. While there remains uncertainty, it is increasingly evident U.S. shale can rebound sharply when prices recover. … Both the magnitude and shorter time cycles of U.S. shale oil are now acting as significant new constraints on OPEC's ability control oil prices and the producer group may not have the power long feared following the Arab Oil Embargo of 1973 to manipulate oil prices.

A Reuters analysis finds that U.S. shale production costs have been halved since 2014. But instead of killing off that output, U.S. shale got stronger despite the low-price environment:

In Dunn County, North Dakota, there are around 2,000 square miles where the cost to produce Bakken shale is $15 a barrel and falling, according to Lynn Helms, head of the state's Department of Mineral Resources. “The success in Dunn County has been fantastic,” said Ron Ness, president of the North Dakota Petroleum Council. Dunn County's cost is about the same as Iran's, and a little higher than Iraq's. Dunn County produces about 200,000 barrels of oil a day, about a fifth of daily production in the state. It is North Dakota's sweet spot because it boasts the lowest costs in the state, yet improved technology and drilling techniques have boosted efficiency for the whole state and the entire U.S. oil industry.

Reuters’ chart shows how shale production costs have fallen:

The Reuters article quotes data from consultant Rystad Energy showing that the Bakken shale breakeven cost per barrel at the wellhead, on average, decreased to $29.44 this year from $59.03 in 2014. Advances in technology could reduce the cost further. Reuters:

“Everybody is drilling wells faster and completing them better,” said Mike Breard, an energy stock analyst at Hodges Capital Management in Dallas. “It's not just a Bakken phenomenon.”

Meanwhile, the growing U.S. ability to export liquefied natural gas (LNG) continues to have impact overseas.  Bloomberg Government (subscription required) reports that the third-biggest buyer of Russian natural gas last year is poised to meet some of its peak winter demand with gas from the United States.

Uniper SE, a German utility and one Gazprom’s biggest and oldest clients, said it will provide reserve fuel early next year in Italy, supplied with LNG from the Cheniere Energy’s Sabine Pass terminal in Louisiana. With global liquefaction capacity growing – and with the U.S. leading the world in natural gas production – prices and infrastructure costs are falling, prompting more countries to consider LNG for power and heating fuel. Majed Limam of Poten & Partners in New York, told Bloomberg:

“The fact that the U.S. is actually exporting LNG to countries where Russia has strong market power, is an important development. The shale gas and oil revolution is one of the most important technological, but also geopolitical developments of the last 10-15 years.”

As we’ve noted before, the United States’ ability to produce abundant supplies of natural gas and its growing capacity to export some of it as LNG, is a potential difference-maker in global markets. A number of countries in Central and Eastern Europe want the U.S. to increase its LNG exports to help diversify Europe’s energy supply. This is starting to happen.

It underscores the opportunity for the U.S. – thanks to plentiful domestic natural gas developed with hydraulic fracturing – to be a major player in the global LNG market. Needed are policies that bolster American competitiveness by clearing away unnecessary delays in bringing U.S. LNG export projects online. Currently, 30 applications for approval to export are pending with the U.S. Energy Department, about half of them submitted in 2014 or earlier.

American energy, safely and responsibly developed with fracking, is the engine of change in this country and in energy markets around the world, offering greater stability and energy security for ourselves and global allies – trends that continue with domestic policies that sustain and grow production here at home.