Shale Gas And Oil: Many Pros For US Manufacturing Companies

Mikhail Korchemkin, an independent commentator on the gas industry, is quoted as saying in this FT article Gazprom needs to export gas at a price of about $14 per 1 million Btu (MMBtu) by 2020 to afford the investments in its pipelines.

But the current average spot price in Europe is already about $10 per MMBtu, while sales in the US are even cheaper at $3.50 per MMBtu.

“They would reach a point of no return,” Korchemkin says. “Gazprom could reach a time when it’s permanently in the red,” potentially leading to a break-up of the firm. Unthinkable a couple of years ago, but now openly discussed as a result of the impact of shale gas.

What about closer to home? Will shale oil and gas result in a bonanza for US manufacturing and free up consumers to spend more on the back of cheap energy prices?

For a time, yes. The infrastructure to export shale gas as liquefied natural gas (LNG) is almost non-existent at the moment, but several projects are in the pipeline, and as exports rise the domestic price will become closer to the world price. In addition, as more gas-fired power stations are built, demand will rise and with it domestic shale gas prices.

Nevertheless US prices are likely to remain at a discount to world prices for many years to come. The US will win in another way; the country operates a current account deficit with the rest of the world in large part because of oil imports. As oil imports have fallen this year, so has the deficit — imports up to August were the lowest since 1998, in part due to lower oil imports.

On the flip side, a stronger current account means a stronger dollar, according to James Mackintosh on the FT’s Short View, which would not help US exporters of manufactured goods.

So on balance, shale oil and gas have much to offer the US.

It will probably usher in a prolonged period of energy supply independence — if not price independence.

It will reduce the demands made on the country’s military to police areas of the world it would probably rather not police.

It will provide, at least for a number of crucial years crawling out of the current crisis, access to cheaper energy relative to the rest of the world, which will benefit manufacturers and consumers.

And it will continue to provide a source of employment — so far estimated at 1.75 million — that is sorely needed in an economy that is not producing anywhere near enough new jobs for its rising population.

By Stuart Burns