An LNG import terminal on the Rotterdam port in February 2022.
Federico Gambarini | Picture Alliance | Getty Images
Russia’s invasion of the Ukraine a 12 months ago has shifted global energy supply chains and put the U.S. clearly at the highest of the world’s energy-exporting nations.
As Europe struggled with threats to its supply of natural gas imports from Russia, U.S. exporters and others scrambled to divert cargoes of liquified natural gas from Asia to Europe. Russian oil has been sanctioned, and the European Union not accepts Moscow’s seaborne cargoes. That has resulted in a surge in U.S. crude and refined product shipments to Europe.
“The U.S. used to provide a military arsenal. Now it supplies an energy arsenal,” said John Kilduff, partner at Again Capital.
Not for the reason that aftermath of World War II has the U.S. been so necessary as an energy exporter. The Energy Information Administration said a record 11.1 million barrels a day of crude and refined product were exported within the week ended Feb. 24. That’s greater than the whole output of either Saudi Arabia or Russia, in line with Citigroup, and compares with 9 million barrels a day a 12 months ago.
Nevertheless, exports averaged about 10 million barrels a day over the four-week period ended Feb. 24. That compares with 7.6 million barrels a day within the year-ago period.
“It’s amazing to think about all those a long time of concern about energy dependence to seek out the U.S. is the biggest exporter of LNG and one in every of the biggest exporters of oil. The U.S. story is a component of a bigger remapping of world energy,” said Daniel Yergin, vice chairman of S&P Global. “What we’re seeing now could be a seamless redrawing of world energy that began with the shale revolution in the USA. … In 2003, the U.S. expected to be the biggest importer of LNG.”
Yergin said the changing role of the U.S. oil and gas industry on this planet energy order will probably be a subject of conversation among the many hundreds attending the annual CERAWeek by S&P Global energy conference in Houston from March 6-10. Among the many speakers on the conference are CEOs from Chevron, Exxon Mobil, Baker Hughes and Freeport McMoRan, amongst others.
“One among the ironies, from an energy perspective, is when you only looked straight back, where we were the day before the invasion … when you take a look at price, you’ll say not much has happened,” said Daniel Pickering, chief investment officer at Pickering Energy Partners. “The value of worldwide natural gas spiked but got here back down. Oil is lower than where it was before the invasion. … The truth is we definitely have set in motion a rejiggering of worldwide supply chains, particularly on the natural gas side.”
In response to the Department of Energy, the U.S. has been an annual net total energy exporter since 2018. As much as the early Fifties, the U.S. produced many of the energy it consumed, but within the mid-Fifties the nation began to increasingly import greater amounts of crude and petroleum products.
U.S. energy imports totaled about 30% of total U.S. consumption in 2005.
“There’s a world LNG boom that has change into rather more apparent and visual to the market,” said Pickering. “We have shifted around who consumes what sort of crude and products. We have meaningfully modified where Russian oil moves to.”
India and China are actually the most important importers of Russia’s crude. “You take a look at those things, and to me, we very clearly adjusted the way in which the world is excited about supply for the subsequent 4 or five years.”
But a 12 months ago, when Russia invaded Ukraine, it was not clear that the world would have sufficient supply or that oil prices wouldn’t spike to sharply higher levels. That is especially true in Europe, where supplies have been sufficient.
oil
RBC commodities strategists said there have been numerous aspects at play that helped Europe get by this winter.
“A mix of warm weather, mandated conservation measures, and extra supplies from alternative producers equivalent to the USA, Norway and Qatar, helped stave off such a worst-case scenario for Europe this winter,” the strategists wrote. “Countries that had relied on low price Russian gas to satisfy their economic needs, equivalent to Germany, raced to construct latest LNG import infrastructure to arrange for a future free from Moscow’s molecules.”
But in addition they indicate that Europe shouldn’t be within the clear, especially if the military conflict continues. “Key gas producers have warned that it could possibly be difficult for Europe to construct storage this summer within the absence of Russian gas exports and a colder winter next 12 months could cause considerable economic hardship,” the strategists added.
Qatar has promised to send more gas to Europe, and the U.S. is constructing out more capability. “In gas, we’ll be a really real player. We’re trustworthy. We now have rule of law. We now have significant resources, and our projects are reasonably quick, in comparison with plenty of other potential projects around the globe,” said Pickering. “My guess is we are going to go from [capacity of] 12 [billion cubic feet] of exports a day to shut to twenty, and we will probably be a giant supplier to Europe.”
Pickering said U.S. exports are currently around 10 Bcf a day.
Amongst the businesses he finds attractive within the gas sector are EQT, Cheniere, Chesapeake Energy and Southwestern Energy.
The oil story is different. Pickering said the U.S. industry selected to not be the worldwide swing producer. “We’re not the swing producer because we decided to not be with our capital discipline,” he said.
Energy corporations now have earnings visibility that they didn’t have before, and that could possibly be the case for one more five years or so, Pickering said. Oil corporations haven’t been overproducing, as they’d previously, they usually didn’t jump in to crank up production despite calls from the White House previously 12 months.
The White House has also been critical of the energy industry’s share repurchase programs, which many have.
“They’re generating plenty of money. They’re being rewarded by shareholders for being disciplined with that money,” Pickering said. “You probably did see corporations signal their optimism, like with Chevron’s $75 billion share repurchase.”
“The Russia, Ukraine dynamic could have ushered in an era where it’s cool to bash big oil, but my expectation is you possibly can bash all of the approach to the bank and the political dynamic may be very different than the financial and economic dynamic,” he said.
The U.S. now produces about 12.3 million barrels of oil a day, and Pickering doesn’t expect that number to race higher. Producer discipline has helped support their share prices. The S&P energy sector is up 18% over the past 12 months, the best-performing sector and one in every of just three of 11 sectors which might be showing gains. The following best was industrials, up 1.7%.
“Our absolute production levels are as high as they have been while you mix oil and natural gas. We were a net importer, and we have dramatically reduced that. It’s an enormous shift,” said Pickering. “The shale boom benefited the energy sector. It benefited U.S. consumers. It was a terrible stretch for producers. They did their jobs too well. They overproduced. After we went from 5 million barrels a day to 13 million barrels a day, we were taking probably the most barrels away from OPEC. That was after we were most influential. We were the swing producer.”