Erik Norland, CME Group
At a Glance:
- Amid record production, crude oil prices are only slightly above the cost of production.
- A rise in U.S. LNG exports could further boost the global relevance of the Henry Hub benchmark.
Will the new administration’s regulatory changes boost U.S. energy production? It depends perhaps on what kind of energy we’re talking about.
Crude Oil
Currently, the U.S. is having record production of 13.5 million barrels per day of crude oil. Lifting restrictions on drilling on public land could potentially boost production a bit further.
However, prices were trading around $70 per barrel on WTI as of mid-January – not much higher than the cost of production. Depending on the area, cost of production can range from $40 to $65 per barrel for most fracking entities.
While oil prices are higher than the cost of production, they’re not so much higher that it will necessarily incentivize a great deal of additional production, unless crude prices rise further still.
Natural Gas
The natural gas market has been booming for years. The U.S. began to export LNG in 2016, which began the process of transforming the Henry Hub benchmark from a North American benchmark into a global benchmark. The new administration is lifting some restrictions on developing further LNG export facilities, which could deepen and broaden Henry Hub’s role in the world. While the January cold snap in the U.S. did cause a rally in Henry Hub natural gas prices, those prices remain low compared to prices in Europe and Asia.
As such, Europe and Asia could remain strong sources of demand for U.S. natural gas for many years to come.
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