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This Week in Energy: American Shale, Full Speed Ahead

This Week in Energy: American Shale, Full Speed Ahead

Booming production in America’s shale sweet spots, steady oil and gas demand and still more momentum towards liquefied natural gas exports highlight this week’s US energy scene.

The numbers are impressive, with oil production from North Dakota and Texas shale formations up by more than 78,000 barrels per day in August, representing a 3.1% rise over the previous month, and Texas’ Eagle Ford shale leading the pack with a 37% increase in production overall since the same time last year.

Crude oil production in the Bakken shale in North Dakota averaged nearly 1.2 million barrels per day in August, according to Bentek, representing an increase of 227,000 barrels per day over the same time last year.

US production of oil and related liquids kept pace with Saudi Arabia in August, at about 11.5 million barrels per day, according to the International Energy Agency (IEA), and with production continuing to boom, US output is set to exceed Saudi output this fall, for the first time since 1991. Keep in mind, though, that the figures here count not only production of crude oil—which is the Saudi powerhouse and what really counts—but the production of “oil and oil-related liquids” in general. This somewhat dilutes the game, but it’s still quite impressive.

And while crude oil is probably the most important piece of this global puzzle, in the US, an enormous amount of faith is being placed on natural gas production from shale formations. As Oilprice.com reported earlier this week, “It is difficult to overstate the effect shale gas production has had on the United States.” While shale gas production accounted for only about 5% of natural gas production, by 2013 it accounted for around 40%.

The Energy Information Administration (EIA) expects US natural gas production to grow at an annual rate of 1.6% through 2040, with the largest demand increase coming from the electric power sector.

With this in mind, the announcement this week that Exelon Corporation—a major electric utility—will expand its natural gas-based power generation capacity by 2,000 MW and add to more natural gas plants in Texas comes as no surprise. Right now, more than half of Exelon’s generation units are nuclear-based.

Construction of Exelon’s natural gas units is slated to begin next year, and should be operational in 2017.

The natural gas boom is also feeding American plans to export liquefied natural gas (LNG), with yet another approval this week.

On Monday, Dominion Energy won federal approval to export LNG from its Cove Point terminal on the Chesapeake Bay in Maryland. This is the first East Coast LNG export project to be approved, while three others approved are in the Gulf of Mexico.

Dominion foresees export operations beginning in 2017 and forecasts that 85 ships will export LNG from its terminal every year. Dominion is targeting the Japanese and Indian markets for its LNG.

The pioneer here, though, was the Sabine Golden Pass LNG export project, whose story best illustrates the changing global gas scene. This is where America’s need for Qatar gas ends, and the export future begins—again, with help from Qatar but in the opposite direction. In partnership, Qatar Petroleum and Exxon Mobil will spend at least $10 billion to convert this facility to handle exports rather than imports, with Qatar planning on footing around 70% of the bill.

In the meantime, the EIA reported this week that US natural gas stocks has increased by 112 billion cubic feet for the week ending 26 September—which is higher than the anticipated 107 billion cubic feet.

Stockpiles are around 10.7% below their levels of a year ago, and 11.4% below the five-year average, while the winter heating season should see stockpiles at around 3.55 trillion cubic feet, or the lowest since 2008.

Please do also click here to receive this week’s Premium service for free. You can read Dan Dickers latest piece on the oil markets and the trades he is making, Martin Tillier looks at au undervalued oil company, Jim Hyerczyk makes his weekly forecasts for the energy markets and our Executive report looks at dividend stocks and recommends a few companies you should be watching – and it’s all free. Click here to start your free trial now.

That’s it from us this week. I hope you enjoy the below report and have a great weekend.

By. James Stafford of Oilprice.com

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Leave a comment
  • Charles Constantinou on October 06 2014 said:
    Excellent research and insight. The U.S is currently facing a bloody mess in energy sector as global economy wobbles in search of sustainable balance and expansion.

    Always great to see your posts James.


    Charles Constantinou
  • Lee James on October 07 2014 said:
    Great review of petroleum production in the US. Un-addressed may be that US petroleum is a tad on the over-production side.

    The revolutionary engine of shale oil and gas production roars ahead while prices drop or hover at low levels. I think this is the big news, and look forward to Oil Price commentary on this issue.

    As other contributors on Oil Price point out, the industry faces a couple of notable risks. Shale oil (along with deep water) production is expensive, and depends on high market prices -- double since 2002.

    The industry is propelled by essentially free money. How long will this continue?

    If our economy does not pick up, how viable are high market prices for oil?

    Oil Price seems to be bullish on shale. Thank you for including writers expressing a different point of view.

    Some way or another, we've go to accelerate our efforts to reduce dependency on fossil fuel. I think less enthusiasm for shale oil is part of the answer, because of the risks cited above, and for the environmental tab that the industry so far dodges.

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