Shale is Everyone’s Best Friend (they just may not know it)

Shale gas has replaced coal with a clean-burning fuel faster than activists could have dreamed. Declining supply costs and an ability to provide consistent baseload power, perfectly positioned natural gas for this victory. All oil and gas companies deserve credit for this shift.Even in the heart of United States crude production, the Permian, wells can produce more than 50 percent gas. We felt at this time of year it made sense to outline what North American producers have achieved and to thank them for their hard work.

To understand why shale gas has accelerated coal retirements, it’s important to understand how these retirements work. The typical approach is that governments, with a push from activist groups, will decide on an appropriate retirement timeline for their coal plants. Timelines usually span several years and are accompanied by some sort of cash compensation for the utility’s infrastructure investment. It’s a slow process and a costly process for taxpayers. What’s happening in the United States is both cheaper and faster, as coal plants are closing voluntarily due to competition from natural gas. Despite an increasingly pro-coal administration, American coal retirements look to reach a record this year with about 15 GW of capacity closing. The average for the several years prior was approximately half that number.

The advantages of the competition-driven shift are clear. Coal generation is declining faster in the United States than in the European Union. As a result, the United States has made significant environmental progress compared to its peers. According to the IEA’s recent global CO2 status report, average energy-related CO2 emissions across countries grew by 1.4%, while the United States posted the largest decline globally driven by natural gas use and renewables. It’s
difficult to attribute these trends to anything beyond the United States’ favourable investment climate for oil and gas development and access to capital for both oil and gas and renewables. China has begun to follow this playbook, committing to increase natural gas to 15% of its energy source by 2030. This translates to >4Bcf/d of additional gas demand per year.

Overall, it is becoming increasingly clear that shale producers will be critical to meeting worldwide energy needs while also achieving global environmental goals. We look forward to assisting companies in achieving this.

Happy holidays to all our hardworking and innovative clients. We will start these briefings again in the New Year.

Mark Le Dain

Mark Le Dain currently runs strategy for Validere and previously worked as an energy investment banker. Mark has significant experience advising energy and infrastructure companies, successfully completing over $18 billion of M&A transactions and $5 billion of capital markets transactions.
Mark Le Dain