An LNG import terminal in the Port of Rotterdam in February 2022.
Federico Gambarini | Image Alliance | Getty Images
Russia’s invasion of Ukraine a year ago has changed global energy supply chains and placed the United States clear at the top of the world’s energy exporting nations.
As Europe grappled with threats to its supply of natural gas imports from Russia, U.S. exporters and others scrambled to divert cargoes of liquefied natural gas from Asia to Europe. Russian oil has been sanctioned and the European Union no longer accepts Moscow’s seaborne cargoes. It has resulted in a increase in US supplies of crude oil and refined products to Europe.
“The US used to deliver a military arsenal. Now it delivers an energy arsenal,” said John Kilduff, partner at Again Capital.
Not since the aftermath of World War II has the United States been so important as an energy exporter. The Energy Information Administration said a record 11.1 million barrels per day of crude and refined product were exported in the week ending Feb. 24. That’s more than the total output of either Saudi Arabia or Russia, according to Citigroup, and compares with 9 million barrels a day a year ago.
However, exports averaged about 10 million barrels per day during the four-week period ending February 24. This can be compared with 7.6 million barrels per day in the previous year.
“It’s amazing to think about all these decades of anxiety about energy dependence to find that the United States is the largest exporter of LNG and one of the largest exporters of oil. The history of the United States is part of a larger remapping of world energy,” says Daniel Yergin, Vice Chairman of S&P Global. “What we are seeing now is a continued redrawing of the world’s energy that began with the shale revolution in the United States… In 2003, the United States expected to become the largest importer of LNG.”
Yergin said the changing role of the U.S. oil and gas industry in the world energy order will be a topic of conversation among the thousands attending the annual CERAWeek by S&P Global energy conference in Houston March 6-10. Among the speakers at the conference are CEOs from Chevron, ExxonMobil, Baker Hughes and Freeport McMoRanamong others.
“One of the ironies, from an energy perspective, is if you just looked straight back, where we were the day before the invasion … if you look at the price, you’d say not much has happened,” said Daniel Pickering, director. investment officer at Pickering Energy Partners. “The price of global natural gas rose but then came back down. Oil is lower than where it was before the invasion… The reality is that we have really set in motion a reshuffling of global supply chains, particularly on the natural gas side.”
According to the Department of Energy, the United States has been an annual net exporter of total energy since 2018. Until the early 1950s, the United States produced most of the energy it consumed, but by the mid-1950s, the nation increasingly began importing larger amounts of crude oil and petroleum products.
US energy imports amounted to about 30% of total US consumption in 2005.
“There is a global LNG boom that has become much more apparent and visible to the market,” says Pickering. “We’ve shifted around who consumes what kind of crude oil and products. We’ve meaningfully changed where Russian oil is moving to.”
India and China are now the largest importers of Russia’s crude oil. “You look at these things, and to me, we’ve very clearly adjusted the way the world thinks about supply for the next four or five years.”
But a year ago, when Russia invaded Ukraine, it was not clear that the world would have enough supply or that oil prices would not rise to sharply higher levels. This is especially true in Europe, where access has been sufficient.
RBC commodities strategists said there were a number of factors at play that helped Europe cope this winter.
“A combination of warm weather, mandatory conservation measures and additional supplies from alternative producers such as the US, Norway and Qatar helped avert such a worst-case scenario for Europe this winter,” the strategists wrote. “Countries that had relied on cheap Russian gas to meet their economic needs, such as Germany, raced to build new LNG import infrastructure to prepare for a future free of Moscow’s molecules.”
But they also point out that Europe is not ready, especially if the military conflict continues. “Key gas producers have warned that it could be difficult for Europe to build stocks this summer in the absence of Russian gas exports and a colder winter next year could cause significant economic difficulties,” the strategists added.
Qatar has promised to send more gas to Europe, and the US is building more capacity. “In gas, we are going to be a very real player. We are reliable. We have the rule of law. We have significant resources, and our projects are quite fast, compared to many other potential projects around the world,” Pickering said. “My guess is that we will go from (capacity of) 12 (billion cubic feet) of exports per day to close to 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 he finds attractive in the gas sector are EQT, Cheniere, Chesapeake Energy and Southwestern Energy.
The oil story is different. Pickering said the US industry chose not to be the global swing producer. “We’re not the swing producer because we decided not to be in our capital discipline,” he said.
Energy companies now have profitability that they didn’t have before, and that may be the case for another five years or so, Pickering said. The oil companies have not overproduced, as they did in the past, and they did not jump in to increase output despite calls from the White House over the past year.
The The White House has also been critical of the energy industry share buyback program, which many have.
“They generate a lot of cash. They are rewarded by shareholders for being disciplined with that cash,” Pickering said. “You saw companies signaling their optimism, like with Chevron’s $75 billion share buyback.”
“The dynamics in Russia and Ukraine may have ushered in an era where it’s cool to hit big oil, but my expectation is that you can hit all the way to the bank and the political dynamics are very different than the financial and economic dynamics,” he said. .
The U.S. now produces about 12.3 million barrels of oil a day, and Pickering doesn’t expect that figure to go any higher. Producer discipline has helped support their stock 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 industrials, up 1.7%.
“Our absolute production levels are as high as they’ve been when you combine oil and natural gas. We were a net importer, and we’ve reduced that dramatically. It’s a massive change,” Pickering said. “The shale boom benefited the energy sector. It benefited American consumers. It was a terrible stretch 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, where were we taking the most barrels from OPEC. That’s when we were most influential. We were the swing producer.”