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Shale Oil & Gas Are Hurricane-Proofing U.S. Energy Markets

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Hurricane Barry just showed once again how the U.S. shale revolution has given us greatly enhanced energy security.

In the shale-era over the past decade or so, the U.S. natural gas supply system has shifted North, away from the Gulf Coast hurricane path

It's totally an onshore boom for U.S. oil and gas.

For example, the Permian basin in West Texas now supplies 17% of U.S. natural gas, with even more hurricane proof Appalachia (West Virginia, Pennsylvania, Ohio) giving us another 37%.

In contrast, the importance of the Gulf of Mexico in U.S. gas supply has been fading, making hurricanes much less impactful on pricing as they used to be.

The Gulf today accounts for just 3% of U.S. gas output, compared to over 25% some 15 years ago.

This, of course, is a very fortunate thing: while our gas demand has soared 35% since 2008, gas production in the Gulf has sunk about 60% to 975 Bcf.

In fact, with shale gas producing nonstop records, the U.S. is now enjoying the lowest summer gas price market in 20 years.

This is even more impressive since U.S. gas demand for power hit a record 45 Bcf/d just last week, and gas supplied over 50% of all U.S. power in June (versus its 35% share for all of 2018).

During Barry, U.S. Henry Hub spot prices (formulated at Erath, Louisiana, interconnection point, right in the Barry path) stayed pretty flat, in the extremely low $2.45-$2.50/MMBtu range.

To illustrate what used to happen, during Hurricane Katrina at the end of August 2005, when the Gulf supplied 25% of our gas, prices quickly spiked 25% to nearly $13.00.

Data source: EIA; JTC

Looking forward, hurricanes are increasingly bearish for U.S. gas prices

They lower gas demand via power outages in affected areas, while also shutting-in our burgeoning and immense LNG export complex based along the Gulf.

Barry put nearly 70% of U.S. LNG at risk, ultimately at one point cutting LNG feedgas demand by 16% to 5.2 Bcf/d.

Now turning quickly to oil, the U.S. shale revolution has helped buffer that market as well.

For example, the Permian basin in West Texas, is now the largest oil field in the world and supplies 35% of all U.S. crude oil.

So even though Gulf oil production has been rising (perhaps surprisingly to some), its importance to maintaining stability has been falling.

Barry shut in 70% of Gulf crude output, yet U.S. prices only went up 4%, and took just a day to quickly fell back down again.

Again, this hurricane proofing by shale speaks to how agile and efficient the U.S. oil and gas industry has become: “Hello, Michael: Beware The Resiliency Of The U.S. Oil And Gas System.”

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