The Energy Giant

"But Big Oil and Big Coal have always been as skilled at propoganda as they are at mining and drilling.  Like the tobacco industry before them, their success depends on keeping Americans stupid." - Jeff Goodell

Quick question - who is the energy giant of the world at present?  No it is not Saudi Arabia or Russia or any of the other OPEC nations, it is the United States with strong support from Canada.  Fraking for natural gas and opening areas to drilling plus new drilling techniques has unleashed a new global powerhouse in the world of energy.  The United States is awash with natural gas and is producing more oil per day than Saudi Arabia (some people question this last metric but all agree that if it is not producing more oil right now it will be by the end of 2015).  I have argued that this change in the balance of power is more important than anything else we have witnessed in the past 20 years as not only does this shift the global balance of power once again firmly towards the United States, it could be the source of renewed wealth and growth in a country in dire need of a way out of the hole dug by years of overspending.

Let's first look at the job requirements for this energy boom.  There are reports of a shortage of welders to weld the pipes and other steel structures required, ships, storage units, refineries, dredgers to keep the Houston water way deep enough to allow larger vessels to navigate the ports, ports, engineers, construction crews, LNG plants and more all needed to support this huge and growing industry.  Wages are spiraling higher in this industry as the shortage of skilled workers is being felt.  The industry is hiring thousands of people who are relocating to places like North and South Dakota and various other inland states.  Small towns are bursting at the seams trying to accommodate the influx of people.  All in all it is a great time to be in the oil trade in the United States.

The export of refined oil is also growing and refineries are running at full capacity.  More are needed to keep up with both the global demand for refined oil and the supply of oil flowing in from the north (the bulk of the refiners are in the southern states).  As the Keystone pipeline is locked up in congress oil is being shipped in trucks, barges, ships and railroad cars.  With all this oil moving around the country it is surprising that there have not been more catastrophes, particularly when you learn that a lot of the railroad cars shipping the oil are old and do not have the safety features of newer cars.  The reason is that there is no requirement to have new cars built but I would imagine that this law will soon be changed.

Assuming that congress or the environmentalists do not shut this industry down, the longevity of the business could be enough to suck up a large enough portion of the population to make a dent in the stubborn unemployment numbers.  While I doubt that congress will create policies to shut off this massively important and hugely influential lobby group, the environmentalists may slow down growth with lawsuits and other maneuvers (just look at the Keystone pipeline project).   They are alarmed (with good reason) at the impacts that another massive spill could have; not to mention the issues with fraking such as leaking oil into aquifers, earthquakes and the release of toxins into the atmosphere to name just a few.  That said it appears that this industry will win out and that the economic benefits will be felt for years to come.

So if that is the case then there is suddenly a huge shift in global power.  Russia for example has relied on its energy and particularly its natural gas shipments to Europe to bully its way to concessions.  The United States and northern African nations now have more than enough natural gas capacity to provide Europe with natural gas.  As time progresses Europe should and is building LNG facilities to allow for shipments of LNG to come from these nations undermining the Russian threat.  While this will take a while it certainly is something I am sure is at the back of the Kremlin's mind during these tense times.

The Middle East has always been a hot spot and the United States has spent trillions of dollars over the years trying to secure its oil requirements.  With this requirement waning it will be interesting to see how this impacts future administrations and how they view conflict in that region.  Certainly the United States will want to ensure a peaceful region and continue to purchase energy from the Middle East but with a stable supply of energy at home it may make it less prone to attack and more prone to sanctions.  A smaller military requirement would also save the country tens of billions of dollars a year and go a long way to getting the budget back in order.

So while I am not going to go out and say that this is our way out, what I will say is that handled correctly the explosion in the energy business in the United States is going to have a profound economic and social impact on the globe over the next twenty plus years.  Let's hope that the industry manages itself with integrity and that congress uses the new influx of tax dollars to invest wisely rather than fritter away another, if not their last, opportunity.