U.S. set for fracking bonanza, says historian Ferguson

[asianobserve]

By Andrew Stevens, CNN
November 23, 2012
TIME


Hong Kong (CNN) -- If there's been one consistent thread running through the U.S. economic story since 2008, it's been the steady drumbeat of gloom.

Outright recession or sub-standard growth, stubbornly high unemployment and fiscal crises have been the topics du jour when it comes to the world's biggest economy.

But now an unlikely champion for U.S. growth under the Obama administration has emerged -- a former adviser to a Republican Party presidential candidate and Harvard history professor, Niall Ferguson, who says America could actually be heading toward a new economic "golden age."

And it has nothing to do with Washington and everything to do with energy.

Ferguson, who is also an author and commentator, believes the production of natural gas and oil from shale formations via a process known as "fracking" -- forcing open rocks by injecting fluid into cracks -- will be a game changer.

"This is an absolutely huge phenomenon with massive implications for the U.S. economy, and I think most people are still a little bit slow to appreciate just how big this is," he said in Hong Kong this week.

"Conceivably it does mean a new golden age."

U.S. energy production has been booming in recent years. The International Energy Agency made a jaw-dropping forecast two weeks ago that the U.S. would pass Saudi Arabia as the world's biggest oil producer by the end of this decade -- and would achieve near energy independence by the 2030s.

That energy boom, asserts Ferguson, will create jobs in the United States. Lots of jobs.

The energy sector currently supports 1.7 million American jobs directly or indirectly, according to economic forecaster IHS global Insight. That could rise to 3 million by 2020, it says.

"It's not only in the extraction industry and infrastructure, but more importantly cheap energy is going to create employment in manufacturing. I think you'll see a renaissance in manufacturing," said Ferguson.

"That is being helped by the fact U.S. labor costs have been pretty competitive over the past decade, even as labor costs are going up in China."

It is also, he says, a big deal for the dollar. "As the U.S. moves towards energy independence and becoming the biggest producer in the world, the dollar can only benefit. Anybody who thought the financial crisis was going to lead to the demise of the dollar as an international currency is wrong -- it's quite the opposite."

And what of U.S. engagement in the Middle East?

Ferguson says it would be naive to assume that Washington would withdraw in any significant way from the region.

"Nobody is going to step in and take the job of being global policeman in charge of Middle Eastern stability. I think everyone would be nervous, if the Chinese suddenly volunteered to take that job on, which by the way they are not going to do anytime soon," he said.

For the recently reelected U.S. president though, the energy boom looks like it could provide a welcome tailwind for his second term.

It's something that Ferguson acknowledges -- though one suspects through gritted teeth.

As a supporter of Mitt Romney he penned a controversial pre-election cover story in Newsweek headlined "Hit the Road, Barack," which was highly critical of the president's first term.

He concedes the irony that the president will now be the beneficiary of the "good times that lie ahead."


U.S. set for fracking bonanza, says historian Ferguson - CNN.com

 

[Singh]

On a related note. This is a fascinating read.

Why the U.S. Fracking Industry Worries About the Weather in India


Workers in America's oil patch pay little heed to the weather. They know for a certainty that down in the South Texas Eagle Ford Shale fields the metal rigs will turn red hot in triple digit summer temperatures, while up north in the Bakken Shale, winter will come with a fury to North Dakota. But these days they do have an eye on the weather forecast 8,500 miles away on the other side of the world in Rajasthan, India, home to a little green bean that is proving vital to the oil and gas industry in the U.S.

Once utilized as cow fodder and for poor man's curry, the guar bean is now a key element in the chemical cocktail used to frack wells, the technology that has prompted the oil and gas boom sweeping across North America, and is set to spur a worldwide boost in oil and gas recovery. India produces some 80% of the world's guar gum, a hydrocolloid — a substance that forms a gel when mixed with water. The powdered gum is produced from the endosperm of the guar or cluster bean, much of it grown in one of the driest and poorest regions of the subcontinent, the northern state of Rajasthan. Neighboring areas of Pakistan also produce a significant export harvest. Demand for guar in the energy industry is running up prices, driving up costs and cutting into profits for the exploration companies, but making Indian subsistence farmers a little less poor in the process.

Guar gum is used in a wide variety of industries including textiles, paper, pharmaceuticals, cosmetics, even as a fire retardant. For ordinary consumers, it is the ingredient that makes ice cream silky, salad dressings thick and creamy, and helps maintain the flavor of a beverage in the mouth after that initial gulp. But while a gallon of ice cream calls for just a smidgen of guar gum, to frack a well in a shale formation may take 20,000 pounds of guar beans. At a recent New York capital markets conference, one of the major exploration companies reported using 1,700 tons a month resulting in a first quarter cost of some $40 million. Given that level of demand, prices for guar have jumped from $4 a kilo (about 2.2 pounds) to $30 a kilo in the last 18 months.

The rising price of the gummy gold was blamed by Halliburton late last month for a decrease in profits so far this year. "The price of guar gum has inflated more rapidly than previously expected due to concerns over the potential for shortages for the commodity later in 2012. As such, the costs have impacted the company's second quarter North America margins more than anticipated," the company asserted in its earnings statement.

In order to extract gas trapped some 6,000 to 10,000 feet beneath the surface, exploration companies use hydraulic fracturing, dubbed fracking, according to NaturalGas.org, an industry educational website, to "make hard shale rock more porous." Large amounts of water, typically three to five million gallons, are mixed with small amounts of chemical additives, injected deep into the earth, forcing cracks in the rocks, allowing the gas to escape into the wellbore.

Guar gum has several important qualities key to that process, according to Dennis Seisun, head of IMR International, a San Diego-based hydrocolloid consulting company. "It's a very good suspending agent and it is easy to break," he says, meaning that when the liquids are withdrawn from the wellbore, the gum helps separate the chemicals from the water. One side benefit, Seisun says, is it's usefulness in the debate with environmentalists over fracking — "The companies can say: 'We are using stuff they put in ice cream!' "

Seisun spent December visiting Jodphur, Rajasthan, in the heart of guar bean growing country. There, guar bean merchants tell tales of massive buys by U.S. exploration companies, offers to buy thousands of pounds of powdered gum to be air-freighted to well sites in Pennsylvania or Texas, or South Dakota. That has prompted a huge run-up in prices and created "turbulence in the marketplace," Seisun says. Indian regulators shut down guar futures trading on the commodities market last year, markets that are closed to foreigners, and punished several brokerage companies. Speculation had driven prices up. Nidhi Nath Srinivas, a columnist for India's Economic Times, reported in May that American companies were distributing seed to farmers, while the regulators pondered allowing the re-listing of guar futures on the exchange after the size and scope of this year's crop emerges.

Late July is the usual time of year to plant the guar bean seeds so the shrubby plant can get a boost from the monsoon rains. But this year, the monsoon is late and forecasters predict it may produce less rain than normal. Guar is "a poor man's crop," according to Calvin Trostle, an agronomist with Texas A&M University's agricultural programs. It is sown by hand by subsistence farmers on small landholdings and is ideally suited to the poor, dusty soils of northern India. The fresh pods, Trostle says, have a lettuce-like, tart flavor and are eaten whole, stirred into a curry or fried with spices. The guar gum is made by removing the beans inside the pod, splitting them and then extracting the endosperm from the seed.

For the last 50 years, Seisun says, the guar gum market was dominated by food manufacturers who called the shots on prices. "The small farmer was basically out of the picture," Seisun says. "How much they got for the crop was how much the food industry offered. That changed with the oil boys."

The food industry press started sounding the alarm bells about rising prices and shortages in the summer of 2011. By January, the concern had spread to the pharmaceutical industry. There are substitutes available to the complaining industries, including xanthum and tara gums, Seisun says, but switching ingredients poses problems. "The food industry is very conservative," Seisun says. "Once they have found a formula and got behind it with a brand name and image, they don't like to change." Changes also mean jumping through additional regulatory hoops, not to mention re-packaging and re-labeling costs.

Energy exploration companies also are looking at guar alternatives (existing ones for the food industry are either not available in large amounts or are unsuitable). Both Halliburton and Schlumberger are exploring synthetic hydrocolloids. "They have all got something, but nothing works as well as guar," Seisun says.

Trostle adds: "It is widely known that after all these years that guar gum is still the best at improving the viscosity, or flowability, of the drilling fluid and helping suspend the sand that is needed deep underground, a mile or more away from the surface, to help prop the rock formation open when it is fractured under high pressure. You know, there are a lot of smart people in chemical engineering and petroleum engineering departments on our nation's campuses, but nobody has come up with something synthetic that works as well."

And so the exploration companies are encouraging more production in India where 10.5 million acres of guar are set to be planted this year, two million more than 2011, Trostle says. Energy companies have invested in Texas research efforts aimed at developing new seed varieties for U.S. production. There is at least one guar production plant in Texas, Trostle says, and guar is being grown by a few farmers in West Texas where it is suited to the "marginal" soils and dry climate. Trostle expects guar gum farming to grow in similar areas in other states, including Arizona, if the price point remains high.

Despite the debate over fracking in the U.S. and Europe and the calls for a shutdown, it is unlikely that will stop the new technology from being utilized in the so-called BRIC countries (Brazil, Russia, India and China), Seisun says. China, for example, is getting a front row look at how fracking works. In November of 2010, the China National Offshore Oil Corporation (CNOOC) paid $1 billion for a 33% stake in Chesapeake Energy's leases in the Eagle Ford Shale project in South Texas. Estimates of China's shale gas reserves range from 26 trillion to 36.1 trillion cubic meters of shale gas, about 50% higher than those estimated in the U.S., according to the Asia Times. The debate over fracking aside, Trostle says it is "gratifying" to see India's poor subsistence farmers find gold in those gummy beans.

Why the U.S. Fracking Industry Worries About the Weather in India | TIME.com

 

[asianobserve]

On a related note. This is a fascinating read.

Why the U.S. Fracking Industry Worries About the Weather in India

I guess the US and India are moving towards a long lasting partnership... :thumb:

 

[sob]

Farmers in Rajasthan are turning into millionaires growing Guar. Good news for us.

Reliance has invested big money on Shale Oil deposits in US. Seems like good times are ahead for Reliance. ( Disclaimer I have some shares of Reliance under my long term investment portfolio)

 

[Singh]

I think there was a thread here on this subject. India was amenable to ditch Iran if US offers its shale oil deposits to Indian cos.

 

[asianobserve]

Reliance has invested big money on Shale Oil deposits in US. Seems like good times are ahead for Reliance. ( Disclaimer I have some shares of Reliance under my long term investment portfolio)

It seems to be a good long term hold.

 

[Phenom]

Always take what Ferguson says with a pinch of salt.
He's a pretty biased historians and a cheerleader for the British Empire, he often pays little attention to its atrocities and overplays its "achievements". Most of his documentaries have a strong pro-west bias and he actually believe the West has already "won" a cultural victory in the world.

 

[sob]

It seems to be a good long term hold.

Yes they are sitting on huge piles of money and investing in technology for the future.

 

[asianobserve]

Yes they are sitting on huge piles of money and investing in technology for the future.

Maybe a handsome dividend wouldn't hurt?

 

[asianobserve]

Always take what Ferguson says with a pinch of salt.
He's a pretty biased historians and a cheerleader for the British Empire, he often pays little attention to its atrocities and overplays its "achievements". Most of his documentaries have a strong pro-west bias and he actually believe the West has already "won" a cultural victory in the world.

That guy maybe a pain in the arse every now and then but he does seem to be on to something in the above article... US can become world's biggest oil producer in a decade, says IEA | Environment | The Guardian

 

[Virendra]

May be we could bargain with the Americans.
We'll give them a push in Thorium research and stocks if they want and they can let us in at the Fracking bonanza.
How does that sound .. deal ??

 

[W.G.Ewald]

Always take what Ferguson says with a pinch of salt.
He's a pretty biased historians and a cheerleader for the British Empire, he often pays little attention to its atrocities and overplays its "achievements". Most of his documentaries have a strong pro-west bias and he actually believe the West has already "won" a cultural victory in the world.

Ferguson is a Scottish name... :-(

http://en.wikipedia.org/wiki/Ferguson_(name)

 

[Phenom]

Ferguson is a Scot,
Don't know why that should clash with his love for the British Empire, after-all many of the famous British Generals in India were Scots.

 

[Das ka das]

Ferguson is a Scot,
Don't know why that should clash with his love for the British Empire, after-all many of the famous British Generals in India were Scots.

Last I heard, Scotland is to vote on Independence from Britain next year