Broker Check

When Pigs Fly

| July 20, 2018
Share |

When Pigs Fly

It's been a while since I commented on one of my favorite industries, namely energy. I've been diverted by my new fascination with age-related science and biotechnology. I hope you've gotten some value from recent posts on those topics, but for this week anyway, I'm back on the oil and gas beat:

I read this morning (July 11, 2018) that President Trump is giving Germany a bad time about sourcing its natural gas from Russia. He's president, so if that's how he wants to spend his political capital, so be it. Presumably, this is another negotiating tactic, and no doubt he would like to advance the cause of American LNG exporters to Europe. It's likely that without Russia and its pipelines, Germany, et al would soon be American LNG customers.

The Europeans say they're shutting down their nuclear and coal capability and going to renewables, by which they mean wind and solar. I'm sure they will, too; when pigs fly.1

So, they're kind of between a rock and a hard place. I don't know what the outcome of the negotiations will be, but I'm sure that in the long run, America has the upper hand, because for the reasons enumerated below, Europe is not likely to become a significant, low cost, oil and gas producer.

America, on the other hand, has nearly doubled its daily crude oil production since 2008.2 And, American natural gas production, which is what Europeans really need to stay warm in the winter, has grown by nearly 42% in the same period3.

Briefly then, here are just six4 of America's energy production advantages:

First, subsurface geology is more extensively mapped in America, than any other country. Here, advanced 3-D seismic mapping is commonplace. Other places, notably Europe, not so much.

Second, a regulatory framework in the U.S. allows drillers to experiment with and develop directional drilling and hydraulic fracturing. In Europe, fracking is effectively banned.

Third, almost regardless of where oil and natural gas is found in America, pipelines, trucks, and tank trains can gather it, send it to processing plants and refiners, and carry the end products to customers, here and abroad. Efficiently and cheaply.

Fourth, to frack a well with just one 10,000-foot lateral requires up to 4 million gallons of water. Multiple laterals per well are commonplace in America, but water is available. So is the technology to process the water and turn it other uses - or return it to whence it came.

Fifth, petroleum geologists and engineers are in high demand in the U.S., and they typically focus on just one formation. For example, a good friend of mine - a petroleum engineer from Alberta - moved to Wyoming after finishing college. He and his growing family have no intention of leaving, and they probably won't need to.

Last, and most importantly, American property owners typically own the rights to any and all minerals, including oil and gas that lie beneath the surface of their properties. No other country honors these important claims.

I have no doubt that our president is sincere in his quest to make America great again - even if he seems to have a flair for confrontational hyperbole. Importantly, he's holding a hand full of aces in his ongoing quest to win better terms with our trading partners, and I think our partners know that. Until next week,

Patience, Discipline, and Confidence in the Future. mh

1         http://thehill.com/opinion/energy-environment/369386-germany-shows-how-shifting-  to-renewable-energy-can-backfire

2        https://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=pet&s=mcrfpus2&f=a

3        https://www.eia.gov/dnav/ng/hist/n9070us2m.htm

4        https://energyandresourcesdigest.com/

 

Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual.

The opinions expressed in this material do not necessarily reflect the views of LPL Financial.

The fast price swings in commodities and currencies will result in significant volatility in an investor's holdings.

Share |