America’s abundance of oil and gas – from natural production or shale fracking – is insulating the country from the energy crisis hitting the rest of the world, especially Europe, China and Australia.
And that seems to be starting to attract more and more attention from investors large and small, especially in renewables, aided by the rest of the world discovering the dramatic changes that will be forced on renewables by the Inflation Reduction Act (IRA) of President Biden.
Coupled with the computer chip investment bill from July and last year’s infrastructure spending legislation, the IRA will make America the renewable manufacturing centre of the future.
That attractiveness is being aided by the cheapness of the carbon fuels that renewables will eventually replace.
While American natural gas prices have risen steeply this year, the levels they have reached are cheap. US prices were around $US9.16 per million British thermal units (mBtus) on Thursday.
Compare that to the $US56 plus reported this week or $US76 a week ago in the northern Asian market, or $US100 per mBtu in the UK late last week.
This is a huge competitive advantage for America’s consumers and industry.
At the same time US oil production is rising steadily — 200,000 barrels a day in June alone, according to US Energy Information Administration this week to 11.816 million barrels a day for that month.
While that was 1.1 million barrels a day under the all-time peak of just over 12.8 million barrels a day in December 2019, the EIA reckons US oil output will rise by that and more in the next year to hit a new record high towards the end of 2023.
US production bottomed at 9.7 million barrels a day in May, 2020 in the depths of the first pandemic and has risen by 2 million barrels a day since – mostly since February, 2021 when it dipped again to 9.9 million barrels a day.
Just adding that many barrels a day to global output will put enormous pressure on OPEC and the Saudis – as the latter have threatened because of weakening prices – not to cut production because that will let American companies fill some of that gap, as happened from 2014 onwards when fracking really took off across the US oil basins.
This is what Warren Buffett and Berkshire Hathaway have realised – before anyone else and why he has taken major positions in Chevron, America’s second biggest supermajor and in the emerging major, Occidental Petroleum. Buffett has invested more than $US42 billion so far in both companies since the start of 2022.
Over the past four weeks, US crude and petroleum exports have hit a new record too, as American oil (and increasingly LNG) heads across the Atlantic in rising volumes where it fetches a higher price and replaces Russian oil.
US shale producers are more profitable than ever with more and more producing extra gas, some for the first time, rather than flare it and give off millions of tonnes of unwanted methane.
The real boost for US oil output has been Putin’s invasion of Ukraine – US oil companies have boosted output by half a million barrels a day since January of this year, much of it at the urging of President Joe Biden, whom the industry thinks is anti-oil!
The EIA this week reported that US oil production touched an estimated 12.1 million barrels a day last week, after 12 million the week before and the first time it has been consistently over that level for close to three years.
This is why US West Texas Intermediate style oil prices have fallen 26% in the past three months – and Brent is off 22% and why US petrol prices are down around $US3.80 a gallon and sliding.
With further sanctions still to hit Russian energy in the next few months, the energy crisis is about to get much deeper in Europe, threatening turmoil, if not recession, around the world. But US production will keep rolling and so will energy costs.
How long will it be before we start hearing of European, Japanese and other companies fleeing to the US to take advantage of cheap energy?
Japanese companies such as Toyota, Panasonic and Honda are doing it, South Korean giants, Hyundai and LG are doing it as well, even if Hyundai will be forced to spend more in the US and less sourcing its battery materials from China.
This week Toyota said it will lift its planned investment in a North Carolina battery factory from $US1.29 billion to $US3.8 billion, partly in response to rising consumer demand for electric vehicles.
That is part of $US5.6 billion Toyota says it plans to invest in batteries around the world.
The plant was first revealed last (northern) autumn and the surge in demand for EVs forecast for the rest of the decade as well as the huge change in US government approach to EVs (on sourcing batteries especially) looks to have driven the significant upgrading.
Battery maker Panasonic will be a partner in the Liberty, North Carolina, plant through its Prime Planet Energy & Solutions (PPES) joint venture with Toyota.
The Liberty plant is due to open in 2025.
Panasonic also has a joint battery making venture with Tesla in Nevada and recently announced plans to build a $US4 billion plant in Kansas that is expected to supply Tesla and other car makers.
Toyota now plans to add two production lines dedicated to making batteries for fully electric vehicles at the Liberty plant, in addition to the four lines initially planned to make smaller batteries for hybrid vehicles such as the Toyota Prius.
Toyota says the plant will initially make lithium-ion batteries using relatively conventional electrode technology – a mixture of nickel, cobalt and manganese for the cathode and graphite for the anode. But newer technologies, including solid state electrolytes, could be introduced over time.
The $US5.6 billion spend will raise Toyota’s annual global battery production capacity to up to 46 gigawatt-hours from 6 gigawatt-hours.
The investment is part of Toyota’s 4 trillion yen plan to sell 3.5 million electric vehicles worldwide and raise battery output capacity to 280 gigawatt-hours by 2030.
The higher investment figure for the Liberty plant follows the recent passage of the IRA, which provides incentives for manufacturers and tax credits to consumers aimed at boosting local content in EVs and batteries.
But those incentives will only go to cars with batteries made of US-sourced materials, or from countries with a free trade agreement with the US, such as Australia, Chile, Mexico and Canada – but not China.
This is the second huge battery plant for the US state of Kansas after the $US4.4 billion one revealed by Honda and LG of South Korea earlier this week.
Not a mention of any concerns about rising electricity or gas costs in the US for a very good reason – there are none when compared to Europe, the UK and China (and even Australia).
Finally, there is one huge irony here. The cheapness of oil and gas / carbon-based energies is making America – the most profligate carbon-based economy on this earth – an increasingly attractive place to build and expand the renewable energy sources that will, hopefully, make the planet a cooler place in decades to come.
That message is not well understood in Australia.
