I have reviewed the American Petroleum Institute’s paper on U.S. oil and gas infrastructure investments. After thinking about it I want to break it down, but I want to focus more on what it means for global energy markets. The European Union is of particular interest to me, given the fact that the U.S. wants to sell some LNG to the European Union. It must be stated that the U.S. is in competition with Russia for supplying natural gas to the European Union. One has to keep in mind that LNG competes with Russia’s Nordstream 2 project.
I also want to reflect on why the U.S. invests in shale oil and gas resources. I believe the main reasons are geopolitical. Investment costs are very high, but potentially there are other considerations that make it more sensical to exploit U.S. shale oil and gas reserves. This also explains why there are tax incentives by the U.S. government for investors wishing to exploit oil and gas sources in the United States.
There is the possibility that this serves a geopolitical agenda. Domestic shale oil and gas supplies are unlikely to compete with Saudi Arabia and Qatar. Instead the objective is energy independance. It means the U.S. wants to import less oil and gas from Middle East oil and by importing less fossil fuels the U.S. eliminates the political exigency having to deal with the Middle East. After all the United States has been involved militarily in the Middle East.
It is important to gain a solid understanding of the true geopolitical nature of U.S. energy infrastructure investments, otherwise it is difficult to understand the focus on shale oil and shale gas.
The paper emphasizes how important it is to optimize the existing oil and gas infrastructrure. The goal is to reduce costs that result from an inefficient supply chain. As the U.S. oil and gas infrastructure ages, more investments will have to be made to keep everything functional.
Most important ideas:
1. More money spend on existing oil and gas infrastructure in the United States
Operational expenditure: More and more money will be spend on upgrading existing infrastructure (operational expenditure), only a fraction will be spend on innovation in the energy sector. Contrary to common belief, a lot of U.S. oil and gas investment has to do with servicing the existing infrastructure. That includes replacing and optimizing the existing infrastructure.
2. Exploiting shale oil and gas resources in the United States
U.S. oil and gas companies will invest more money on exploiting shale and tight resources, for crude oil, production will reach a plateau around the year 2019.
I highly recommend this paper for anyone interested in reading about the future of the American oil and gas industry and in particular those interested in investments in the shale oil and shale gas sector.
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