The past decade has been tough for American consumers with stagnant wages, high unemployment and a deflated but now stabilising real estate market. It is a doom and gloom scenario but there is light on the horizon (pardon the pun) powered by low natural gas prices. Low natural gas prices are a massive game changer for the US economy. New technologies such as fraccing have opened up shale gas basins that were previously unrecoverable. According to the EIA approximately 7.6 trillion cubic feet of shale gas will be produced this year up from 0.6 trillion cubic feet in 2004 before the introduction of fraccing. The listed company Cheniere Energy personifies the opportunity. A company once touted as being a LNG importer was recently given approval for their first LNG export facility. America’s goal of energy self-sufficiency is no longer a pipedream!
BP is also a believer, in their 2030 energy outlook North America (including Canadian oil sand production) is forecasted to be the only importing region able to turn its energy deficit into a small surplus. This contrasts with other importers such as Europe and China who as a whole will need to import 40% more in 2030 than they do today. See chart below.
Low gas prices bring many benefits to the US economy the obvious one being manufacturing, energy accounts for 8% of overall input costs with gas 14% of that total the rest being oil and coal. The substitution of some oil and coal with natural gas in particular for power generation will generate massive efficiencies for the economy. Consumers will save through cheaper electricity and heating which could save US households billions of dollars, essentially a permanent tax cut. America would also benefit from less reliance on Middle Eastern oil and potential reductions in US military spending for security in the Middle East.
See the chart below for international gas prices as of the end of 2011. US Henry Hub prices have fallen further to the high $2 range while other countries are suffering from increasing prices. Lower comparable gas prices are a major competitive advantage for US businesses.
Source: BP Statistical review of world energy 2012
It may only be a trickle but there are very tangible signs the outsourcing trend in manufacturing is reversing. Even EADS the producer of airbus has announced plans to open its first production facility in the US, amazing news given that EADS is partly owned by European government. The low comparable gas prices, the availability of skilled labour and lower real estate prices have made American businesses more globally competitive then they have been in decades, foreign companies and even their governments are beginning to take notice.
Jason
Disclosure
The material in this article is for informational purposes only and in no way constitutes a solicitation of business or investment advice. The material has been prepared without regard to any client's or other person's investment objectives. Before making an investment decision you should consider the assistance of a financial adviser and whether any investment or service is appropriate in light of your particular investment needs.
The material in this article is for informational purposes only and in no way constitutes a solicitation of business or investment advice. The material has been prepared without regard to any client's or other person's investment objectives. Before making an investment decision you should consider the assistance of a financial adviser and whether any investment or service is appropriate in light of your particular investment needs.
