Heartwood Investment Management on how there has been a resurgence in American energy production and how fracking is here to stay.
“We have commented in the past on the extraordinary phenomenon of ‘Hydraulic Fracturing’ or ‘fracking’ which has gathered pace with breath taking speed in the US. Over 40 000 wells have been drilled using this technology and the impact has been nothing short of revolutionary, surprising even the most optimistic forecasters.
“Although the initial focus was on natural gas, the technology enables the production of liquids too which, with modification, can also be used in refineries. Furthermore substitution of these various products has enabled the displacement of crude oil to some degree. In particular this has dramatically reduced the need for oil imports.
“The U.S. imported 7.17 million barrels a day of crude in May, a 26% drop from the same month in 2008. Imports accounted for 22% or US oil consumption, the lowest level since 1970, the EIA has reported. All the indications are that this trend will persist as the nation’s output should climb to 9.28 million barrels a day next year, the highest since 1972.
“Apart from the immediate and visible impact on the external energy balance, the revolution is having a major impact on infrastructure which is being adjusted for the change in dynamics, including a realignment of energy flows across the country.
“However, the impact on the wider economy is also being felt as energy input costs fall well below global averages and competitiveness rises. There are many documented cases of production, especially in chemicals, moving back to the US. Meanwhile the US consumer has been benefiting from falling energy costs, with a direct impact on disposable income. Inflation too has been affected, very much a virtuous circle.
“However, in the media the technology is often described as ‘controversial’ with much misinformation parroted. It is interesting therefore to read of a recent opinion poll by Populus of 4000 adults in the UK which found overwhelming support for reducing Britain’s reliance on gas imports. 57% supported development of shale deposits with just 16% against.
“This technology is here to stay and will continue to have dramatic effects globally.”