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Uncertainty is Clouding the Energy Trading Outlook

A ComTech Advisory Whitepaper

US OIL PRODUCTION SUPPORTING
GLOBAL MARKETS
Though the US will certainly continue to be
a net importer of oil for the foreseeable future, the share of imports from outside of
North America will continue to fall, reducing the country’s reliance on increasingly
unstable or potentially unreliable sources
in the Middle East and South America.

With increasing production, the US has
been able to effectively return about an average of about 1 million barrels a day (volumes
that otherwise would have been imported) to
the global markets over the last three years,
helping to ensure a stable global oil price
even in the face of global supply disruptions
(Libya, Iran, Iraq, and others) that have oc-

curred during the period. Nonetheless, as long as the US is
a net importer of oil, the country will continue to be exposed to
a global price and the impact of any prices shocks that could
occur should supply interruptions occur in the Middle East or
South America.

Ongoing geopolitical unrest in the Middle East and Africa producing regions continues to be a cloud over the oil
markets, with the potential loss of several millions of barrels
a day should countries such as Libya and Iraq fall into turmoil.
Should this happen, and despite the increasing production in
North America, shortages would occur if swing producers,
particularly Saudi Arabia, are unable to offset the losses and
prices could spike well above the recent three year average
around $110/bbl (Brent).

WHAT WILL BE THE IMPACT OF
US NATURAL GAS?
With the increases in US natural gas production, and the prospects for even greater
volumes to enter the market over the next
decade, increasing attention is being paid
to the prospects for large scale export of
LNG from the US. Though only a single facility is currently under construction (Sabine
Pass operated by Chenier) and the volumes
to be exported from that facility are relatively modest (initially 2 BCFD), more than
a dozen new facilities are in the permitting
process and though many of those may not
be ultimately built, the potential for much
© Commodity Technology Advisory LLC, 2014

greater exports does exist. However, given that the US is
geographically disadvantaged in servicing the lucrative
Asian and European markets versus competitors in eastern
Russia, Australia and North Africa, domestic US prices will
ultimately determine the competiveness of US LNG.

Further clouding the outlook for LNG development in the US,
the EPA announced in late spring 2014 new CO2 emissions
standards intended to reduce greenhouse gas emissions from
coal generation by 30% from 2005 levels, by the year 2030.
These new regulations, if implemented as proposed, will force
the early retirement of significant amount of coal fired generation capacity, with much of that lost capacity necessarily
replaced with natural gas-fired generators. While the exact mix