Fortune Magazine's April issue has three good articles on the resurgence of oil and gas exploration and production activity US onshore. The lead article, "Exxon's Big Bet on Shale Gas," provides a good summary of the growth and success of unconventional shale plays in the US in the last 8-10 years. A second article chronicles the revival of the North American oil and gas industry and its effects on the US economy. The third article is an interview with Daniel Yergin, author of The Prize: the Epic Quest for Oil, and most recently The Quest: Energy, Security, and the Remaking of the Mordern World.
In 2010 Exxon purchased XTO Energy for $35 billion in stock, Exxon's largest acquisition since its merger with Mobil in 1999. Exxon's acquisition was an effort to get in on the shale gas revolution by buying XTO, one of the biggest holders of shale gas reserves. Exxon has (wisely in my view) kept XTO as a separate entity, in what Rex Tillerson, Exxon's CEO, calls "reverse integration." Since Exxon acquired XTO, XTO's gas reserves have increased 81% to 82 Tcf. Fifty percent of Exxon's total reserves are now in natural gas. XTO is Exxon's big bet on the long-term success of domestic natural gas as the preferred energy source for the US.
US natural gas production has increased 28% since 2005, and about one-third of that production is from shale gas. By 2035 it is estimated that shale gas will make up about 60% of US production. Rex Tillerson believes that natural gas will be the fuel of choice for electricity generation. Exxon estimates that world demand for electricity will grow 80% by 2040 and that natural gas will pass coal as the world's second-largest fuel source (behind crude oil) by 2025. Daniel Yergin: "I believe natural gas in the years ahead is going to be the default fuel for new electrical generation. Power demand is going to go up 15% to 20% in the US over this decade because of the increasing electrification of our society -- everything from iPads to electric Nissan Leafs. Utilities will need a predicable source of fuel in volume to meet that demand, and natural gas best fits that description."
Increased gas production has rippled through the US economy. According to Fortune, the US is now a net exporter of refined petoleum products, for the first time since 1949; plans to build facilities for the import of liquified natural gas are being revised to use those facilities to export LNG -- Cheniere Energy plans to begin construction of a new LNG processing unit at Sabine Pass on the Louisiana coast, to begin exporting LNG by 2015; cheap gas has revived the US steel industry -- Nucor Steel has broken ground for a $3.4 billion steel plant near Baton Rouge, La., and US Steel is building a new facility in Lorain, Ohio. In Texas, increased tax revenues are expected to save the state from another disastrous bienneum of deficits. Texas unemployment is well below the national average because of the oil industry.
"We call it the great revival of the North American oil industry," says Daniel Yergin. "This is a turnaround not just for North America's oil supply, but one with global impact. It's certainly the biggest development in the world oil market of this century."