Productivity in the USA is Increasing - Dramatically

By: Larry Cyna | Thu, Oct 25, 2012
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Cheap energy is the key to productivity. Where the cost of energy is lower, productivity is greater. This is true worldwide. We begin by looking at energy costs and production in the USA.

The Presidential Debate - Candidates Agree on Gas & Oil

Last night the third and final debate between Romney and Obama took place. What was interesting was their agreement that US production of gas and oil is increasing at a rapid rate. Their calculations were slightly different, and their positions on why this is happening differed, but they agree that US reserves were growing at a rapid rate, that there were more reserves now than every before, and that there were bountiful supplies coming on stream.

This is the final nail in the coffin of The Peak Oil Theory.

Natural Gas

The supplies of natural gas are growing at such a rapid rate, that the price of gas dropped dramatically and is staying in the $3 to $4 range. Monthly Dry Shale Gas Production as an example has risen from approximately 10 billion cubic feet per day in January 2010, to roughly 25 billion cubic feet per day in September 2012.This is an enormous increase of about 250% in only 21 months. Quite staggering actually.

The average Henry Hub spot price which was about $6 in 2007, and reached roughly $13 in 2008, now trades in the $3 range. Supplies are now longer the problem. Demand is now the problem with explorers and producers cutting back on drilling because of oversupply and low demand. No-one thought this would happen in our lifetimes.

US Oil Costs

October 24, 2012 On the market today, oil prices were trading below $86 a barrel, poised for the fifth straight session of declines.

Monthly Energy Review

One of the more interesting items buried in the Monthly Energy Review from the EIA (full report here) is the fact that U.S. crude oil production for the lower 48 states is estimated to have reached a 23-year high in June of 5.74 million barrels per day. The last time 5.76 barrels of oil were produced daily was in 1989, 23 years ago.

During the first half of 2012, the EIA estimates that oil production in the non-Alaska states increased almost 13% compared to the same period last year, boosted by the strong, ongoing gains in North Dakota shale oil (+67% year-to-date through May) and Texas shale oil (+17% year-to-date through May). Thanks to advances in technology (fracking and horizontal drilling), domestic oil production has been increasing since 2010

What Does This Mean?

The Presidential race is one of rhetoric and bluster, as if the president has the power of Job. The reality is that what has changed the landscape in the production of cheap energy, is technological advancement that was unheard of a few years ago. As I have repeated so many times in previous blogs, economic cycles rise and fall and each is triggered by events or trends. It seems that the cause of the next economic cycle may be cheaper energy.

But This is Not the End, It is Only the Beginning

There are a number of public companies and others who claim new technologies to increase production dramatically from existing sources. These include:

- using microbes to vastly increase recovery from old oil wells and existing reservoirs already in production.

- Wavefront Technology Solutions makes tools that dramatically increase oil production from water floods. The technology, which has been used by Encana, BP, Chevron and most recently the national oil company of Oman, produces a pulse to dramatically improve the effects of a water flood.

- Enhanced Oil Recovery (abbreviated EOR) is a generic term for techniques for increasing the amount of crude oil that can be extracted from an oil field. Using EOR, 30 to 60 percent or more of the reservoir's original oil can be extracted, compared with 20 to 40 percent using primary and secondary recovery.

And so on. The explosion of technology in this area is impressive and continuing.

is the Result

The US is now the world leader in these technologies and is rapidly becoming self sufficient in energy. Oil imports are dropping continually and natural gas exports are projected to increase dramatically.

Plunging natural gas prices have turned the U.S. into one of the most profitable places in the world to make chemicals and fertilizer, spurring hopes for an industrial renaissance. In Beaver County, Pa. A proposed multi-billion dollar Royal Dutch Shell would be the first such plant built in the U.S. in more than a decade.

Alaska wants a $50 billion pipeline and export complex built to develop natural gas that's stranded on its icy North Slope. Governor Sean Parnell gave ConocoPhillips to the end of this month to provide plans to pipe natural gas south and condense it into a liquid, known as LNG, for export. The joint venture would compete with growing global supplies of LNG coming into markets. Asian gas buyers as of July paid almost 6x the futures price in the U.S., where prices are depressed by the shale boom.

The Long View

The US economy is poised to have a boom in manufacturing because of cheap energy. Labor costs in the US have dropped dramatically and although this is painful for the workers, the competitiveness of the US is dramatically increasing. Cheaper energy, cheaper labor, and more incentives for business, will bring the next monster wave of prosperity.



Larry Cyna

Author: Larry Cyna

Lawrence J. Cyna, CA

Larry Cyna

Larry Cyna, CA, is CEO and Portfolio Advisor to Cymorfund, a boutique hedge fund. He expresses his insights several times a week on his blog and offers a free newsletter which can be subscribed to here.

Mr. Cyna is an accomplished investor in the Canadian public markets for over 20 years, and has managed significant portfolios. He is a financing specialist for private and public companies, and has expertise in real estate and debt obligations. He has assisted private companies accessing the public markets, has been a founding director of public companies and is a strategic consultant to selected clientele.

He is and has been a director, a senior officer and on the Advisory Board of a number of TSX and TSXV public companies in the mining, resource, technology and telecommunications sectors, and the Founding Director of two CPC's with qualifying transactions in mining and minerals. He was an honorary director of the Rotman School of Management MBA IMC program, has completed the Canadian Securities Institute Canadian Securities Course & Institute Conduct and Practices Handbook Course, was a former Manager under contract to an Investment Manager at BMO Nesbitt Burns, a roster mediator under the Ontario Mandatory Mediation Program, Toronto, a member of the Institute of Corporate Directors of Ontario, a member of the Upper Canada Dispute Resolution Group, and the Ontario Bar Association, Alternate Dispute Resolution section.

He obtained his designation as a Chartered Accountant in Ontario in 1971 and was the recipient of the Founder's Prize for academic achievement together with a cash reward. He became a CPA in the State of Illinois, USA in 1999 under IQEX with a grade of 92%. He is a Member of the Institute of Chartered Accountants of Ontario and the Canadian Institute of Chartered Accountants.

He holds certificates in Advanced ADR & in Civil Justice in Ontario, Faculty of Law, University of Windsor, certificate in Dispute Resolution from the Ontario Institute of Chartered Accountants. Previous accomplishments are Manager of Cymor Risk Consultants LP specializing in Risk Management Assessment; CEO of Cyna & Associates specializing in mediation and ADR; Founder & Senior Partner of Cyna & Co, Chartered Accountants, a fully licensed and accredited public accountancy firm with international affiliations; and was a partner in a large public accountancy firm.

Mr. Cyna is well known in the Canadian Investing community. He attends presentations given by public companies to the industry on a daily basis.. These presentations are intended by the various hosting companies to present their inside story for the purpose of attracting funding, or of making parties more interested in acquiring shares of those companies. Being in constant communication in this manner keeps Mr. Cyna deeply involved in the current market and leads to numerous investment opportunities.

Mr. Cyna is currently a Director of Argentum Silver Corporation and Telehop Communications Inc.

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