How the Russian war made the US a major energy supplier

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LNG import destination at the port of Rotterdam in February 2022.

Federico Gambarini | Photography Federation | Getty Images

Russia’s invasion of Ukraine a year ago has changed global energy supply chains and put the US clearly at the top of the world’s energy exporting nations.

As Europe grappled with threats to supplies of natural gas imports from Russia, US exporters and others scrambled to divert shipments of liquefied natural gas from Asia to the Europe. Russian oil is allowed, and the European Union no longer accepts Moscow’s marine products. That has led to an increase in US crude and refined product shipments to Europe.

“The US used to provide a military arsenal. Now it provides an energy arsenal,” said John Kilduff, partner at Again Capital.

Oil market gripped by US fears, Europe and growth hopes in Asia, analyst says

Not since World War II has the US been so important as an energy exporter. The Energy Information Administration said 11.1 million barrels per day of crude and refined products were produced in the week ended February 24. That’s more than the total output of either Saudi Arabia or Russia, according to Citigroup, and compared to 9 million barrels a day a year ago.

However, exports averaged about 10 million barrels a day over the four weeks ending February 24. That compares to 7.6 million barrels per day in the year-ago period.

“It’s amazing to think about these decades of worries about energy dependence to find that the US is the largest exporter of LNG and one of the largest exporters of oil .The US story is part of a larger reshaping of world energy,” said Daniel Yergin, vice chairman of S&P Global. “What we’re seeing now is a continued redrawing of the world’s energy that started with the shale revolution in the United States. … In 2003, the US was expected to be the largest importer of LNG. “

Yergin said the changing role of the US oil and gas industry in the global energy order will be a topic of conversation among the thousands attending the annual CERAWeek energy conference with S&P Global in Houston from March 6-10. Among the speakers at the conference are CEOs from Chevron, Exxon Mobile, Baker Hughes and Free McMoRanamong others.

“One of the ironies is, from an energy perspective, if you didn’t look straight back, where we were the day before the attack … if you look at the price, you’d say not much has happened ,” said Daniel Pickering, chief investment officer at Pickering Energy Partners. “The global natural gas price rose but came back down. Oil is lower than where it was before the attack. … The truth is that we have certainly launched the renewal of global supply chains, especially on the natural gas side. “

According to the Department of Energy, the US has been the world’s largest annual energy exporter since 2018. Up until the early 1950s, the US exported most of the energy it consumed, but in the mid-1950s the country began to import greater amounts of raw materials and petroleum.

US energy imports amounted to about 30% of total US consumption in 2005.

“There is a global LNG boom that has become much more visible and visible to the market,” said Pickering. “We have moved around who is consuming what kind of crude and commodities. We have meaningfully changed where Russian oil moves.”

India and China are now the largest importers of Russian crude. “You look at these things, and for me, we clearly changed the way the world thinks about solar for the next four or five years. “

But a year ago, when Russia attacked Ukraine, it was not clear whether the world would have enough supply or whether oil prices would not go up to higher levels. That’s especially true in Europe, where supplies have been plentiful.

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RBC commodity strategists said there were a number of factors at play that helped Europe recover from this winter.

“A combination of warm weather, mandatory conservation measures, and additional supplies from other producers such as the United States, Norway and Qatar, helped prevent such a worst-case scenario for Europe this winter,” wrote the strategists. . “Countries that had relied on low-cost Russian gas to meet their economic needs, such as Germany, raced to build new LNG import infrastructure to prepare for a future free of molecules Moscow.”

But they also point out that Europe is not clear, especially if the armed conflict continues. “Major gas producers have warned that Europe could find it difficult to build storage this summer without Russian gas exports and that a colder winter next year could cause severe economic hardship,” said the strategies.

Qatar has promised to send more gas to Europe, and the US is building more capacity. “In gas, we are going to be a real player. We are reliable. We have the rule of law. We have important resources, and our projects are reasonably fast, compared to many other projects around the world,” said Pickering. “I think we will get away with it [capacity of] 12 [billion cubic feet] export daily to almost 20, and we will be a major supplier to Europe.”

Pickering said U.S. exports are currently about 10 Bcf per day.

Among the companies that are attractive to him in the gas sector are EQT, Cheildi, Chesapeake Power and Power of the Southwest.

The oil story is different. Pickering said the US industry chose not to become a global swing producer. “We are not the swing producer because we decided not to with our capital control,” he said.

Energy companies now have earnings visibility that they didn’t have before, and that could be true for another five or so years, Pickering said. Oil companies have not been overproducing, as they have in the past, and they have not jumped in to increase production despite calls from the White House in the past year.

The White House has also been critical of the energy industry’s share buyback programs, which many have.

“They are generating a lot of money. They are being rewarded by shareholders for being controlled by that money,” said Pickering. “You’ve seen companies celebrate their hope, like with Chevron’s $75 billion share buyback. ”

“The dynamics of Russia, Ukraine may have come into a time where it is good to wash big oil, but I expect you can get to the bank all the way and there is political momentum very different than financial and economic vitality,” he said.

The US now produces about 12.3 million barrels of oil a day, and Pickering doesn’t expect that number to go any higher. Producers’ control has supported their share prices. The S&P energy sector is up 18% over the past 12 months, the best performing sector and one of only three of 11 sectors to show gains. Next best was businesses, up 1.7%.

“Our total production levels are as high as they were when you combine oil and natural gas. We were a net importer, and we’ve reduced that significantly. It’s a big shift it is,” said Pickering. “The shale boom benefited the energy sector. It benefited US consumers. It was a terrible piece for producers. They did their job too well. They overproduced. When we went from 5 million barrels a day to 13 million barrels a day, we were taking the most barrels away from OPEC. That’s when we were the most influential. We were the swing producer.”

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