CERAWeek, led by Daniel Yergin, is an annual meeting of global energy industry leaders that was held this week in Houston, Texas USA. It’s a veritable “who’s who” of the industry with many prominent CEOs and global ministers in attendance. The theme of the meeting is “The Quest: Energy, Security and the Future of Economic Growth.” This is a nod to Mr. Yergin’s book, The Quest. (Here’s a link to a blog post I wrote last year about this book. I highly recommend it if you are in or do business with the energy industry.)
Listening to the recurring themes during the week reminded me of a famous movie from the 1960’s, The Graduate. Remember when the young Dustin Hoffman painfully mingled with business associates of his father during a graduation party? One man, eager to provide direction to the young college graduate cornered him and said, “Benjamin, I have one word for you—plastics.” If I happened to see the now more mature Mr. Hoffman this week, I would make an attempt to corner him and offer him sage advice, “Benjamin, I have one word, I mean, two words for you—shale gas.”
It became very clear to me how shale gas is causing an inflection point in the industry on many different fronts, starting with the long-term cost curve of natural gas. With the huge supply of gas from shale, experts in the industry predict the price of gas to remain relatively inelastic far into the future. Just today, there was an article in the Wall Street Journal that discusses how cheap gas has become ($2.27 per 1,000 cubic feet as of today in New York trading). What a change from the 2000s where the price of gas on a chart looked more like sine wave!
There is so much gas that the country has done a complete 180 on liquefied natural gas (LNG). Just a few years ago, we were building LNG regas terminals to prepare for gas imports from Qatar. Now we have one export terminal approved with others lining up to gain approval to supply gas to the European and Asian LNG markets where gas trades at about $9 and $13 per 1,000 cubic feet respectively.
This week has been a wonderful experience. I look forward to watching how better certainty of natural gas cost manifests itself in the global petrochemical, power, transportation, and agriculture markets.