Skip to main content

Peter Zeihan

Geopolitical Strategist

Share
Commentary

US will thrive in evolving energy marketplace

Share

Peter Zeihan

Geopolitical Strategist

Share

As nations continue searching for alternative energy solutions in the wake of boycotts and sanctions against Russia, the global energy marketplace will continue to change and evolve. How the United States and its Western allies will fare in this new market has become an important subject of study and debate.

Straight Arrow News contributor Peter Zeihan believes the United States is well positioned to take advantage of emerging opportunities in the global energy marketplace. Zeihan adds that the United States will emerge as a top exporter of various energy products, while Western rivals Russia and China will have difficulty carrying out ambitious plans of their own.

Below is an edited excerpt of Peter’s Jan. 24 “Zeihan on Geopolitics” newsletter:

Today, we’re looking at the U.S. natural gas market based on energy data from 2023. The U.S. natural gas market was remarkably stable in 2023, so being the world’s largest producer and exporter of natural gas has its perks.

Thanks to shale and fracking tech, the U.S. maintained an average natural gas price of just over $2.50 per thousand cubic feet (and the low was about $2.20). As soon as we zoom out, we see much more volatility in the global natural gas markets…

Most of the world faced higher prices due to disruptions in Russian supplies and increase in demand across the board. As the Russian natural gas system continues to degrade, the world will struggle to find a suitable replacement. Liquified natural gas (LNG) is a top contender, but it’s expensive and quite technically challenging. A Russia-China pipeline has also been tossed around, but I just don’t see them overcoming the logistical and financial hurdles.

As the rest of the world scrambles to figure out their energy solutions, the U.S. will be well-equipped to ride out the wave and even emerge as a key player in the global energy landscape.

Hi everyone, Peter here coming to you from flat on my back in bed because I threw out my back off. This is the last one I record from here.

 

We have a data update from the US government specifically, the Department of Energy’s Energy Information Agency, which tracks energy production usage and prices and everything and their their data for calendar year 2023 indicates that the average price for natural gas in the country was just over $2.50 for 1000 cubic feet. In fact, it bottomed out at just below $2.20 in May. And this is after a really volatile year in calendar year 2022. When because of the Cramer cuts the slope, where because we’ll just we’ll just do that, where because of Ukraine war, there was high demand everywhere and everyone was trying to get away from Russian natural gas. In that calendar year, U.S. prices hit nearly $10. But that was nothing compared to what happened in the rest of the world, with prices for several months being above $50 and even approaching $100 a few areas, which still boggles my mind that we actually hit those numbers.

 

Anyway, 2023 was much calmer, and the reason for it is twofold. Number one, that the United States is not just a producer and exporter of natural gas, but it does so using a series of technologies that are broadly not applicable in the rest of the world, the shield technology and fracking. Because of this, the United States has a breakeven price in our pure shale, natural gas fields typically below five, in some places below $3 per 1000 cubic feet. And second, we get a lot of associated natural gas production that comes from our shale oil operations, which you know, technically, based on how you run it, the numbers that could be free. Anyway, it means the United States is the world’s largest producer of natural gas, kicking out about 120 billion cubic feet per day, or 1,200 billion cubic meters per year.

 

And most of that is trapped in the system at home because moving natural gas from A to B is kind of difficult. There’s really only two routes. One is to have a pipeline network that sends it from production to consumption locations. Usually those are within individual country, because natural gas, being a gas, is hard to store.

 

And the U.S. does have the world’s largest system for distribution, by far. The second option is to chill it down to negative 300-odd degrees into liquid form and then put it into onto a specialty tanker to send it across the ocean to someone who has a specific receiving facility who can take the liquid and re-gasify it without it blowing up. All of that is as expensive as it sounds. So what happened in 2022 in Europe was the Europeans used to be on a pipe system that brought in stuff from Northwestern Siberia for the most part, and that gave them access to reliably large and reliably cheap supplies. So when the Europeans decided to move on from the Russians, they had to go to some other pipe suppliers that they have, specifically Algeria, Libya, and especially Norway. But that wasn’t enough. So they had to go out into the world for liquefied natural gas, which is not available in large volumes in the way that piped gas from a neighbor can be. And so prices went up and up and up and up. And in the United States, we sent everything that we could. And that allowed the Europeans a degree of energy security, but only at a very, very high price point.

 

What we’re seeing now is the slow-motion, so far slow-motion degradation of the Russian system, because their pipes are all oriented towards Europe, and they are falling into disrepair because they’re not being used, and the Russians are using all their technical experts to maintain the war effort. They do have a couple of liquefied natural gas facilities, some in the Far East and the island of Stockland, north of Japan, and some on the Yamal Peninsula in far northwest Russia. But it is foreigners who provide the technical skills for those facilities to operate. And as those technical skills are increasingly withheld, these facilities will fall into disrepair. And well, let’s just say when you’ve got a refrigeration unit, that is dealing with billions of cubic meters of flammable materials, and something goes wrong, something goes wrong all at once. We haven’t had any industrial accidents at these facilities yet. But it’s only a matter of time [sic].

 

I don’t know how long before those facilities go offline and then Russian natural gas will be gone. Getting it out by other means is nearly impossible. There are very few countries that can do LNG liquefaction. China is not on that list. Most of them are part of the Western alliance plus Japan. That is back in Ukraine. And if you’re gonna send a pipeline for the middle peninsula to populated China, you’re talking about the world’s largest chunk of infrastructure, with roughly 70% of the terrain it’s going to cross being virgin, with no existing infrastructure at all. So you’re talking tundra and taiga and permafrost and mountains. Building that pipeline would be [a] $100 billion project, it would take minimum of 15 years. And even if it was done, the cost of operating would be 2, 3, 4 times as much as the natural gas would be worth. So the Russians and the Chinese have repeatedly said that this pipeline is going to happen. They’ve been saying that for 20 years. And then you get down into the details. And the treasurer said, yeah, the Russians are gonna pay for the operation pipeline and the Russians, the Chinese are gonna pay for the operation of the pipeline. And that’s why nothing has started. So the world has to get by without Russian natural gas.

 

And until a year and a half ago, they were the world’s largest exporter, that is going to have big price implications everywhere, except in countries that produce natural gas for themselves, read the United States. Now, that means in the United States, the two to $3 range we’re in right now is more or less normal, we’re not going to go above five for any more than a very short period of time, because what we’ve discovered is that the shale gas guys can bring on Well, wells in a matter of weeks. If you remember your shale history back between 2004 and 2011, roughly, it was all about the natural gas. And then in 2011, to 2013, oil really came into its own and natural gas faded, not because we were producing it, because we were producing it as a byproduct of oil production. What we saw in calendar year 2023, when prices were going up, is that the shale guys went back to the old natural gas fields, and were able to produce using the tricks they had learned in the shale oil field for the last 10 years. And that pushed down the cost of production and push up the volume of natural gas that was produced by massive volumes. And we basically got back to a balanced market. Now the United States does have take away capacity to get some of that natural gas to international systems, we have roughly 10 billion cubic feet of pipeline capacity, mostly to Mexico, at about another 10 billion cubic feet for LNG, which is mostly going to Europe now. That’s in comparison to 120 billion cubic feet of overall production, which is a number we now know that we can increase in fairly quick succession when we need to. So again, prices should be lower for longer, we might have those occasional spikes, but then the shale guys will just drill and bring the price right back down. Now why does that matter to you? three big reasons. Number one, natural gas remains the number one fuel source for electricity generation, this country about 40% of the total. So anything that requires electricity, which is almost everything. Natural gas is the solution, at least in the midterm. And since the United States needs to roughly double the size of its industrial plant, as the Chinese fade away, we basically need 50% more electricity, natural gas is going to be a huge component of that. Second, let’s say you don’t like fossil fuels at all, let’s say that you’re a greening like solar and wind, well, you should still like natural gas, because when the wind doesn’t blow, or when the sun doesn’t shine, which happens you know, every night, you need a partner of fuel in order to keep the lights on. And natural gas combined cycle power generation facilities can spin up and spin down in less than 15 minutes. So they are the best partner for green tech that we have. And while the Californians don’t like to say it out loud, but half of their energy that they generate within California itself comes from natural gas. Specifically, because of this pairing capacity. batteries cost an order of magnitude more, they don’t last very long. And they have some other problems with their construction that is ugly from any number of strategic and green points of view. Natural gas is a known and as long as we’re going to be moving towards wind and solar, for most of this country, even in increments natural gas is the logical partner for all of it. And then the third thing is a little bit more esoteric, and that has to do with what happens in manufacturing. Once you decide you want to really get into everything. In globalization we have broken up the supply chains energy comes from someplace iron ore comes from someplace steel comes from someplace else, plastics comes from someplace else, it’s brought together for assembly at different locations, as the world breaks apart, and we have a more national or continental system, more and more of those intermediate steps need to be done at home or near home.

 

And a lot of those intermediate steps use raw materials that are made from natural gas. So natural gas makes naphtha, makes poly urethane, makes plastics, naphtha makes fertilizers and pesticides, makes agricultural products. Natural gas is the base material for a lot of this stuff. And now the United States is the largest producer, supplier and exporter of all of those intermediate products. And what we’re seeing now is the U.S. moving up the production chain moving in a greater value-added production system for all of this so that we can still do the classic manufacturing and have the entire input system at home. So to have natural gas at these price levels for a very long time is great and it’s going to be a very long time.

 

I am, we largely stopped looking for natural gas about 10-15 years ago because we knew at that time, we had over 30 years of supplies at current rates of production.

 

And we proved in 2023, that it’s pretty easy to bring even more online. So this is going to be the norm for the United States while it goes through these massive reindustrialization phases, and natural gas will both power fuel and provide the base materials to make all the possible. And that is not going to be replicated anywhere else. No one else can produce natural gas at the price point that the United States can, and no one else has natural gas production facilities relatively close to their population centers like the United States does. So this, this is our new normal, and it’s going to provide the bulwark for American industry for at least the rest of this century.

More from Peter Zeihan

Latest Commentary

We know it is important to hear from a diverse range of observers on the complex topics we face and believe our commentary partners will help you reach your own conclusions.

The commentaries published in this section are solely those of the contributors and do not reflect the views of Straight Arrow News.


Latest Opinions

In addition to the facts, we believe it’s vital to hear perspectives from all sides of the political spectrum. We hope these different voices will help you reach your own conclusions.

The opinions published in this section are solely those of the contributors and do not reflect the views of Straight Arrow News.

Weekly Voices

Left Opinion Right Opinion

Tuesday

Left Opinion Right Opinion

Wednesday

Left Opinion Right Opinion

Thursday

Left Opinion Right Opinion

Friday

Left Opinion Right Opinion