The liquid natural gas boom
While the United States has assumed world leadership in the production and storage of natural gas, it has, until now, been primarily limited to replacing coal as a power-generating agent for America’s broad complex of electric utilities.
The huge volume of natural gas being generated is one of the reasons this by-product to the hydraulic fracturing (fracking) of oil has maintained an average price structure of less than $3 per million Btu, the global measuring statistic of natural gas pricing.
But that is about to change, as Cheniere Energy opens the first and largest LNG export terminal in southern Louisiana by the end of this year. Five other terminals have already been approved and are currently in various stages of development. The United States stands on the verge of phenomenal world LNG coverage, where prices in divergent locations such as Japan, the United Kingdom and France are priced in the double digits of million Btu.
But while global shipments of the unlimited availability of natural gas will hit its stride in the next five years, this U.S. domestic availability will bring back much of a swiftly expanding basic chemical industry, of which natural gas is a component.
Already, some aspects of this major industrial sector have returned to the United States due to the low cost and availability from storage of natural gas, the liquefaction of which will hit a massive stride in the immediately foreseeable future.
While the world surplus of oil will continue to suffer from the depressant impact of a growing demand/supply inversion, LNG does not face such prolific competition. Even natural gas itself will be welcomed overseas, especially in central and Eastern Europe, where it has, for years, depended on the “mercy” of a Russian pipeline infrastructure, built during the control period of the Soviet Union’s satellite system.
It is almost a foregone certainty that natural gas will be a massive addition to America’s domestic production sector, ready to welcome sustained growth after decades of manufacturing shrinkage.
Recently, German chemical giant BASF SE announced its choice of Freeport, Texas — already a developing natural gas export site — to build its largest single plant investment to date. This is only the beginning.
EPA and fracking expansion
Recent U.S. Environmental Protection Agency restrictions, if implemented, will put severe limitations on the planned expansion of hydraulic fracturing on government-owned land. This represents about two-thirds of long-term expansion, to which the amazingly successful fracking technology had been focusing for maximum future domestic oil production planning.
Previously, the go-no-go decisions relating to fracking were left to states, while the EPA was relatively detached from declaring positions on its environmental impact. While the energy industry in general, and the American Petroleum Institute in particular, are already taking legal action to defuse such EPA initiatives as “approving the chemicals” used in the fracking process, this issue is moot for now.
With oil supply inventories reaching levels both in this country and abroad not seen in many decades, the major integrated oil giants — Exxon-Mobil, Phillips/Conoco and embattled British Petroleum — and technological service producers — Haliburton, Baker Hughes and Schlumberger — have severely cut back production and laid off employees.
Spurred by unexpected cutbacks in China, for years the leading importer of global oil, and lowered demand in economically troubled regions, such as Western Europe, the “bloom off the fracking rose” is fast decelerating.
While long-range expansion plans remain on the drawing board, much of the increasingly cost-effective fracking technology could be put on future ice. While major fracking development activities have been explored in other nations, only the United States has the combination of vast uninhabited acreage, unlimited subsurface oil/natural gas deposits and sufficient financial backing to make fracking the energy-implementing success it has achieved during the past five years in the U.S. private sector.
Although the current supply/demand inversion has created previously unexpected oil and natural gas gluts, the long-term outlook for both global population expansion and the intensity of economic development, especially in Southeast Asia, will bring greater supply needs and higher prices back into balance before the end of the current decade.
Tax inversions, foreign takeovers
The U.S. Internal Revenue Service finds itself under increasing pressure from Congress and the Obama administration to moderate the massive trend toward tax inversion, a method by which American corporations acquire overseas divisions and subsidiaries, and then re-domicile their tax base in the lower gross tax rates of the home nations of such acquisitions.
This has cost the U.S. Treasury Department billions of dollars as the tax loss of these inversions is estimated to number in the multibillions of dollars in 2014 alone. This stung a rare combination of the U.S. Congress and the White House into action by passing legislation that makes such shifting of tax responsibility much more difficult and less lucrative.
But while stricter government moves toward reconciling those tax responsibilities, no action was taken to keep foreign companies from turning the tables by foreign parent corporations in the United States. Initial estimates of such buyouts reached a peak in 2014, estimated to total $275 billion.
Despite the difficulties engendered by the unprecedented rise of the U.S. greenback to global leader status, the world’s monetary liquidity has found U.S. tangible and intangible investments to be the most stable and secure with long-term growth potential, by far the best in the world, at a time when most global investment targets are appearing to be less desirable.
This is due to geopolitical instability, as well as the financial troubles spreading throughout most of Europe, the Middle East, Africa and, most disappointingly, China. While the latter had occupied the investment dollars of sovereign wealth funds, as well as foreign governments and the private sector, the United States stands like a lone beacon of light when it comes to security and long-term gain.
Even with such trends slowed by the dollar’s conversion value, astute observers are willing to forego their own currency’s buying power to some extent by investing in America’s future, especially energy, at the time of the current temporary slump and inventory glut.
That is why corporate U.S. acquisitions are making the “rearranging” of taxes to the purchasing nation, whose lower taxes and foreign-based revenue profits are piling up overseas.
Barring a major revision of the IRS standoff between the Obama administration and Congress, this will mean a further pile-up of U.S.-produced revenue profits in the foreign parent companies.
The logical resolution of repatriation of U.S. divisional subsidiaries overseas and some means of taxing foreign-owned, U.S.-generated profits is called for, but unlikely to be implemented. Barring a logical breakthrough by the joint legislation of the administration and Congress, this more reasonable way of stemming increasing budget deficits will unfortunately be withheld in the two fiscal years to come.