Burdened by a historically low-price environment for oil since 2014 and gas since 2008, it’s amazing how quickly the efficiency of our industry has evolved. U.S. oil and gas drillers have upgraded their operations and technologies far faster than anybody could have predicted and are now producing at record highs. As it turns out, the long perception that U.S. crude oil production peaked in 1970 was wrong, as was the perception that U.S. gas production peaked in 2005.
Those companies that couldn’t improve were forced out of the industry, with 100+ combined bankruptcies in 2015 and 2016. As reported by BNEF’s 2018 Sustainable Energy Factbook, which is a must read every year, the incredible declines in breakeven costs for the U.S. natural gas industry illustrate a fact that hardly ever gets mentioned. Renewable energy technologies won’t simply be handed the future: renewables won’t be competing against oil and gas as they are now but as they will become. The renewable industry is evolving but so is the oil and gas industry.
The high gas prices that we saw before the shale revolution aren’t really possible anymore. Our low cost gas resource base is too big. In many parts of Texas, gas can now be profitable to be produced when prices are NEGATIVE. This is because gas in the Permian comes along “free” as a byproduct when crude oil gets produced (“associated gas”). Despite having no gas-directed rigs, the Permian now yields almost 10 Bcf/d (or 13% of the U.S. total), compared to 6.9 Bcf/d this time two years ago. To gauge how impressive the breakevens shown in the graph are, consider that Henry Hub gas prices are now ~$2.75 per MMBtu.
Along with the other shale plays like the Utica and Marcellus in Appalachia, this hugely discounted “free gas” produced in Texas is the driving force behind our rapid and massive arrival on the global liquefied natural gas (LNG) scene – the fastest growing internationally traded commodity in the world. Looking forward, we will soon be able to export 10 Bcf/d of LNG to a gas thirsty world. Bet on U.S. LNG: right when we will have this huge capacity to export, the global market will be short because of a lack of final investment decisions in the industry over the past few years. Today’s, LNG business is the midst of an about-face, falling from oversupply to undersupply, and we will be increasingly prepared to capitalize.