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America, the world's new energy superpower

After having to import massive amounts of foreign energy for most of its modern history, the United States became energy independent in 2019, thanks to the fracking and shale revolution. In a paradigm-shifting development, the US has become the global energy superpower, combining production, technology and capital in a way never quite previously achieved – a development sure to have global implications for decades to come.

A few years ago, US oil and gas production dipped briefly during the pandemic as global demand collapsed, but it quickly bounced back. Today, the US is the largest crude producer in the world by a long shot, pumping out over 13 million barrels per day and accounting for nearly 20% of the world’s total oil production. Indeed, the US is now producing more oil than any country in history.


Source: Yardeni Research

It’s a similar story for US natural gas production, which has also been setting record highs since recovering from the pandemic in 2021. As of 2022, the US exported far more natural gas than it imported – the bulk of which has been converted to liquified natural gas (LNG) and gone to Europe to ease the energy shortage created by the cut-off of Russian supplies following Putin’s invasion of Ukraine. Last year, the US overtook Australia and Qatar as the world’s largest exporter of LNG, and the country’s export capacity is set to continue growing.


Source: US Energy Information Administration

The United States has become the clear leader in the discovery of new energy technologies. It has started to build upon its manufacturing leadership in areas such as oil, gas, and power turbine equipment, and is exploring new energy technology manufacturing. New technology advances have been particularly meaningful in leading to major increases in energy production. For example, inventions in drilling including 3D seismic imaging, directional drilling, and hydraulic fracturing, reliable wind turbines, solar photovoltaics, the lithium-ion battery chemistry, and many others. Almost all of this technology discovery was driven in the United States.

No country comes close to US energy capabilities

This combination of largest producer, access to innovative energy extraction technology, plus capital market expertise, creates a commanding power which no other country possesses. For example, Saudi Arabia is strong in oil production, Qatar in LNG, Russia is a smaller player in both, China leads in some renewables, building materials processing and power equipment manufacturing capacity, and the UK is strong at capital markets. But none of these competitors have the combined strengths of the US energy profile.

Thanks to three laws introduced by the Biden administration, the Bipartisan Infrastructure Law, the Chips Act and the Inflation Reduction Act (the IRA), US corporates have committed to more than $200 billion in energy-related investments (including batteries, electric vehicles, renewables and hydrogen). While President Biden came into office with an anti-fossil-fuel stance, concerns about energy security have led to a far more open position towards Big Oil and Big Energy, albeit one that is not much spoken about.

The US dominates capital raising for investments. The IRA’s climate-related provisions provide some $370 billion in tax credits and government funding over the next decade for energy and infrastructure. Some of the tax credits (such as for clean hydrogen) are uncapped by Congress, so if investors flock enthusiastically from around the world (e.g. Australia’s Andrew Forrest), the IRA’s public climate spending could exceed $800 billion. Add in the likely impact on private capital and the figures could rise to $1.6 trillion in decarbonisation investments over that period, according to Goldman Sachs.


Source: The Economist

Meanwhile, the US continues to deploy renewables, such as solar power and battery storage, at a significant rate. Together, these sources are expected to make up around 80% of all new electric-generating capacity in the US this year. Such growth is thanks to the decline in the cost of these technologies, and expectations that they are going to get even cheaper as they get deployed further, in turn boosting adoption, getting more competitive, in a virtuous cycle.

Implications from America being an energy superpower

In short, the US has become the world’s top energy superpower. The consequences are far-reaching:

  • The US has become the global leader in increasing energy production.
  • This is generating energy price deflation from its technology innovation.
  • The US is leading the world in reduction of tons of emissions (on a tons-per-year reduction basis).
  • America is now the global leader in providing energy market stability and security.

These energy strengths of the United States imply a new geo-political paradigm, which is yet to be fully understood. For example, the US relationship with the large Middle Eastern oil and gas producers was historically an extremely delicate one, with American diplomacy built around indulging behaviours on the global sphere it usually would not tolerate. Perhaps in the near future, the reality of global energy superpower status will force some re-thinking. As expressed in the Hoover Institution’s recent paper by Paul Dabbar, “Most current US energy diplomacy is still moored to the previous energy posture of weakness”.

America’s growing market share deprives Russia, Saudi Arabia, Iran, and other petro-states like Venezuela of pricing power and geopolitical leverage, lowering energy prices and boosting geopolitical stability. US oil supply growth has also kept oil prices relatively low in the face of OPEC production cuts designed to prop them up.

Even with the “OPEC+” additions, the cartel currently controls less than half of the global supply of oil (and shrinking). Lower energy prices stimulate the global economy and help ease inflationary pressure.

US energy abundance could usher in a new era of US technological advancement and productivity growth that increases living standards. If this seems like tremendous news for America, that’s because it is. Perhaps yet another reason for US stock markets to be at record all-time highs.


Source: Chart Advisor, Investopedia

Sources

  • The Hoover Institution, Stanford University: “US Energy Superpower Status and a New US Energy Diplomacy” by Paul Dabbar.
  • The Economist: “America’s chance to become a clean-energy superpower” 5 Apr 2023.
  • The Financial Times: “The new commodity superpowers” 8 Aug 2023.
  • US Energy Information Administration.
  • Goldman Sachs.
  • Yardeni Research.

 

Paul Zwi is a Portfolio Strategist at Clime Investment Management Limited, a sponsor of Firstlinks. The information contained in this article is of a general nature only. The author has not taken into account the goals, objectives, or personal circumstances of any person (and is current as at the date of publishing).

For more articles and papers from Clime, click here.

 

12 Comments
Tony
April 15, 2024

"Meanwhile, the US continues to deploy renewables, such as solar power and battery storage, at a significant rate. Together, these sources are expected to make up around 80% of all new electric-generating capacity in the US this year."

Surely that's a stretch. According to The U.S. Energy Information Administration, In 2023, some 4.18 trillion kWh of electricity was generated in the US. About 60% of that was from fossil fuels—coal, natural gas, petroleum, and other gases. About 19% was from nuclear energy, and about 21% was from renewable energy sources.

Perhaps installed capacity is being quoted as opposed to what is actually generated, which for intermittent energy sources is typically only about a quarter to a third of installed (or nameplate) capacity.

OJP
April 17, 2024

Or the article is deliberately misleading, rather than your diplomatically worded " a stretch". But I guess its sort of alluded to by the author's use of the phrase " all new electrical generating capacity ", a near meaningless term imo.

John Peters
April 14, 2024

Paul,

A great article, really strategic in nature.

This has serious implications for long term investing and the value of the USD. I run a mining company (www.strategicminerals.net) that has a substantial Tungsten and Tin deposit we are developing. The interesting thing is that they are looking at nuclear reactors to utilise large amounts of tungsten and provide large amounts of energy. Tin of course is needed for the electrification process (along with Copper).

In light of global tensions with China and Russia, who supply 85% and 5% of the world's tungsten supply, and the use of Tungsten in defence (shells casing), industrial manufacturing tooling and this future energy possibility, it was not unsurprising to see that the US Government has instructed all its defence suppliers to be sourcing at least 50% of their tungsten from non Chinese or Russian sources by the end of 2026.

Dudley
April 17, 2024

"The interesting thing is that they are looking at nuclear reactors to utilise large amounts of tungsten and provide large amounts of energy.":

The majority of tungsten is currently used to make tungsten carbide; almost as hard as diamond. 'Vitally' important in all mining as tips of drill bits used to drill holes to take explosives. Still cheaper than synthetic industrial diamond and more shape-able.

Large temperature nuclear reactors, fusion or fission, should they be deployed at large scale, might use tungsten due to its high melting temperature and heat conductivity.

Molten salt thorium reactors may use beryllium to reduce salt fusion temperature. A long shot exploration target.

Graeme
April 14, 2024

Should mention nuclear. Fossil fuels were the source of 83.7% of energy produced in the USA for the first half of 2023, compared to 7.8% for nuclear and 8.4% for renewables. However, the USA is leading a 22-nation multilateral commitment to triple global nuclear energy production by 2050.

Goronwy Price
April 14, 2024

To be fair, my Tesla shares have compounded at 273.9% per annum even after the fall. Leaves Santos in the metaphorical but non existent exhaust pipe. It will be like computers and mobile phones. U.S. companies will reap the profits, low labour price countries will do the work.

Darmah
April 12, 2024

I live in a small town south of Syd. and although I’m seeing more EVs, the numbers are dwarfed by the prominence of brand new, massive gas guzzling SUVs and 4WDs.
Add to this, the numbers of the homes being built with 5 or 6 bedrooms and A/C leaves me with little hope that we’ll achieve “Net Zero Emissions” in my dwindling lifetime.
At least they have solar panel’s to “virtue signal” to the world they’re doing their bit.

Graham W
April 13, 2024

Don't forget that our PM said that we could charge our EV's overnight by using solar panels. Still waiting for moon powered electricity producers.

James
April 12, 2024

Apr 8 2024 article from Chris Leithner titled "Net zero" isn't a Megatrend: It's a mega trap" is definitely worth a read and consideration.

In the article he demonstrates:

"Globally, and as the UN defines it, the “transition to net zero” simply isn’t happening. At best, it’s unfolding at a snail’s pace: at its current rate, reaching something close to “net zero” will take 400 years!

Charitably, on a worldwide basis the odds of reaching “net zero by 2050” are very long. Realistically, planet Earth won’t come anywhere near it. Indeed, it’s more likely that during the next quarter-century the polar opposite will occur: it will transition away from “net zero.”

On current trends, the Albanese government will fail to reach its “renewable energy target” (82% of the country’s electricity generated from intermittent and thus unreliable sources such as wind and solar by 2030).
Even if it succeeded, it wouldn’t matter: neither in Australia nor globally can electricity from either intermittent or nuclear sources achieve “net zero by 2050.”

Australia‘s energy transition, as opposed to its electricity transition, isn’t occurring. Politicians will therefore abandon it – and their Paris, COP28, etc., commitments – as their miniscule benefits and immense costs become apparent to the general public.

The trillions of dollars which governments and businesses have (in Neiron’s words) “invested to reduce and eliminate CO2 emissions in order to halt global warming” are thus a colossal waste. As such, this so-called mega-trend clearly offers no “long-term growth potential to investors.” Quite the contrary: over more than 15 years “green energy investments” have generated almost continuous – and cumulatively massive – losses.

Empirically, the “global energy transition” isn’t happening. Logically, what isn’t occurring and is highly unlikely to transpire obviously isn’t a megatrend. For investors who continue to ignore and deny these fundamental truths, the “transition” will remain what it’s always been: a “mega-trap.”

Trevor
April 12, 2024

Climate The Movie is worth a look.

Quote "Climate The Movie does as it says, present the Cold Truth. It gives a good overview of how climate change came to dominate current political discourse. It features a raft of prominent scientists, physicists, climatologists and Patrick Moore the founder of Greenpeace who dared to dispute the prevailing consensus that the science is settled. The documentary meticulously details the 4 other more reliable measurements of temperature change (rural surface stations, ocean gauges, satellite readings and atmospheric balloons) to show that all the IPCC reports and models are mostly based on sites that have been engulfed over time by urbanization and hence subject to distortions in the record by the urban heat island effect. The 4 methods confirm only a slight temperature rise and this is reported alongside the long term historical records going back centuries and then tree ring and ice core testing going back millennia to show that we've been warmer before when there was no industrial output to blame.

Finally many current media myths and obsessions were debunked including no increase in hurricanes and storms, hotter daily temps in the 1930's than recently and significantly fewer modern forest fires than the '20' and '30s.

The way prominent scientists, environmentalists, politicians and the media exaggerate and distort the truth to manipulate the masses into accepting all of the constraints on lifestyle and escalating costs of enforcing net zero is dramatically laid out. This documentary is an important contribution to the debate of climate science that is in reality far from settled."

Kurt
April 12, 2024

G'day Paul, Western and conservative propaganda against China and renewable energy is all pervasive and has a profound effect on the average consumer but big changes in vehicle purchases are happening despite the pragmatic observations made by ourselves and journalists.

Paul Jenkinson
April 11, 2024

Anyone investing the EV industry recently as the cars pile up on the docks around the Western world?
Tesla ,the best,down 60%!!

 

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