ACKSON – According to an energy industry expert, the only thing more difficult to predict than energy prices is the weather, but there have been numerous signs of what is to come.
“Something that has these wild fluctuations is difficult to forecast,” said Loren Scott, president of Loren C. Scott and Associates at the Rocky Mountain Energy Summit in Jackson Thursday morning. Scott is an energy industry and financial consultant with clients like ExxonMobil and J.P. Morgan Chase on his roster.
Though he doesn’t know what may happen with exactness, he has observed numerous regulations and market forces that have caused irregularities and signs to watch within the industry. He said the shale boom has led to greater U.S. economic power as we become more energy independent. Since 2008, oil imports have decreased from 66 percent to 47 percent, according to Scott, which has helped in foreign policy.
“Before the ‘shale gale’ took place, when we wanted to impose sanctions on Iran we could do it but it was tough,” he said. “We don’t need their oil now.”
He called this one oddity of the markets, of which he cited many.
Another peculiarity of the markets is that with more domestic production, a more notable price differential has emerged between different crudes, with Brent crude outpacing West Texas Intermediate significantly. Before, most oil came in on large barges to the U.S. and was sold universally as oil. With domestic production happening close to the refineries, that distinction can be emphasized, and it has diminished West Texas Intermediate’s prominence on the market. And producers follow the higher-priced commodity as capitalists will do.
“We’re all capitalists,” Scott said in his lilting southern accent. “Even ministers. Ever heard of a minister who was called down to a lower-paying job?”
The shale boom has also fueled potential export markets that have been untapped since 70s-era scarcity-based regulations. But since the restrictions are only for crude oil exports, some producers have tried to sidestep the regulations by building $500,000 to $5 million facilities that “strip off” propane and butane condensates that can arguably be called “refined” to allow for exports. And those oceanic crude tankers that haven’t been bringing as much oil to the U.S. will ship the products more cheaply than they would have before the shale gale. The alternative to exporting some products would require oil giants like Marathon Oil to spend $2.5 billion to bring refineries up to current EPA standards.
Scott also touched more specifically on natural gas, saying high European prices driven by a fracking ban in the European Union is driving chemical plants to locate in the U.S. since prices are so much lower here. With “an ocean of natural gas out there,” Scott said domestic prices will likely stay low, leading many to bet on U.S. energy prices with big infrastructure investments.
“We’re kicking the butts of the Europeans,” Scott said. “They can’t compete with us when they’re spending $12 per mmbtu for natural gas.”
He said consequently the U.S. is gaining $103.8 billion in industrial expansion compared to former banner years of $5 billion.