The shale revolution has reshaped the US energy landscape at home and abroad, and helped the country project power worldwide, according to latest IEA policy review and industry experts.The shale boom has transformed the United States into the world’s top oil and gas producer and a leading exporter for the fuels. As a result, the US approach to energy policy making has shifted from a mind-set of scarcity to one seeking to maximize the benefits of energy abundance, according to a report by the International Energy Agency (IEA).
Shale gas
The US has emerged as the largest gas producer thanks to the shale revolution that started in the 2010s. Private exploration and production companies started experimenting with different ways to extract resources from shale, Renee Pirrong, head of research and analytics at Houston-based Tellurian Inc., told a group of reporters participating in a study tour organized last month by the State Department.
Renee Pirrong, head of research and analytics at Tellurian Inc. Photo: Minh Tuan
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US crude production started increasing dramatically in 2011, relatively the time when Cheniere was looking to build the first liquefied natural gas (LNG) export terminal in the US. Prices correspondingly dropped in 2014 as more oil became available in the market. Parallel, gas production jumped.
In 2018, the US posted the largest energy growth of oil production on a global basis, which exerted had a corresponding downward impact on global oil prices, she noted.
Source: Tellurian Inc.
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Pirrong pointed out that given the rising production of gas, at least US$150 billion – US$225 billion of investment required to build 100 -150 million tons per year (mtpa) of LNG and supportive pipeline infrastructure and LNG export facilities to evacuate excess US gas supply.
J.C. Thomas, Director of External Affairs, Sempra LNG, told the reporters in a separate meeting in Hackberry, Louisiana, that the US is slated to be one of the largest LNG exporting countries in the world, with some 35 mtpa of capacity operational in 2019 via four projects and another 70 mtpa of capacity under construction.
The US’s gas industry is backed by abundant, low-cost feed supply, low construction costs, transparent permitting process, flexible LNG and innovation. Existing US natural gas pipeline grid provides significant interconnectivity and access to LNG export facilities, he elaborated.
The increasingly competitive LNG has helped reduce US CO2 emissions. From 2007 to 2017, the US managed to reduce its CO2 emissions by 800 million tons, thanks to the shale revolution, according to data provided by Pirrong.
With productivity improvements and companies investing more in new technologies, which Pirrong said are in the middle of Shale Revolution 2.0, the breakeven coast of LNG production will further decrease.
Energy mix
The abundance of low-cost natural gas has resulted in gas-fired generation overtaking coal-fired generation in the power sector. At the same time, falling costs and policy support for renewable power have motivated a surge in wind and solar generation capacity. Consequently, coal and nuclear plants – which have long underpinned US electricity markets – are facing closures, according to the IEA report.
The shale revolution has significantly changed the role of natural gas in the country’s energy mix over time, especially increasing its share in electricity generation.
Graphic: Minh Tuan
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Coal production has trended down since its peak of 24.0 quadrillion British thermal units (BTUs), or quads, in 1998. A major reason for the general decline in US coal production in recent years is the decrease in US coal consumption for electricity generation, according to statistics of the US Energy Information Agency (EIA).
Natural gas production reached a record high of 31.5 quads in 2018. In 2017 and 2018, US dry natural gas production was greater than US natural gas consumption for the first time since 1966, thanks to more efficient drilling and production techniques. The increase in production contributed to a decline in natural gas prices, which in turn has contributed to increases in natural gas use by the electric power and industrial sectors.
Natural gas plant liquids (NGPL) are hydrocarbon gas liquids (HGL) that are extracted from natural gas before the natural gas is put into pipelines for transmission to consumers. NGPL production has increased alongside increases in natural gas production and reached a record high of 5.8 quads in 2018. U.S. HGL consumption and exports to other countries have both increased in recent years.
Graphic: Minh Tuan
Net energy exporter
The shale revolution is set to turn the US into a net oil exporter. EIA projects that, for the first time since the 1950s, the US will export more energy than it imports by 2020 as increases in crude oil, natural gas, and natural gas plant liquids production outpace growth in US energy consumption.
Congress lifted a ban on crude oil exports at the end of 2015. Moreover, the Department of Energy streamlined the government’s approach to LNG export approvals in 2014, helping to support the US’s becoming a major global supplier of LNG and a net exporter of natural gas. The administration is also supportive of coal exports, especially from the West Coast.
The US needs global markets as an outlet for excess production and global markets need US supply to be able to satisfy the demand growth for clean burning fuel, especially for power generation in Asian markets. The key markets that are growth drivers are China, India, and Europe, which is the only region in the world that has substantial natural gas pipeline and storage infrastructure, according to Pirrong from Tellurian.
Europe has balanced the global LNG market this year. The large amount of LNG arriving on the shore in Europe has triggered the coal-to-gas switching, as natural gas can compete head to head on a cost basis with coal. Some countries in the continent has started to replace inefficient coal-fired power generation facilities.
“Since the last in-depth review five years ago, the United States has reshaped energy markets both domestically and around the world,” said IEA’s Executive Director Fatih Birol while presenting the report last month.
“In this context, the IEA commends the lifting of the US ban on crude oil exports as well as efforts to streamline regulatory approvals for LNG exports, which have helped bolster global energy security by diversifying supply options for importers.”
