Hey everyone. Peter Zeihan here coming to you from flat on my back in bed because I threw out my back. This is the last what I heard from here. We have a dead update from the U.S. government, specifically the Department of Energy’s Energy Information Agency, which tracks energy production, usage and prices and everything and their data for a calendar year 2023 indicates that the average price for natural gas in the country was just over $2.50 per thousand cubic feet.
In fact, it bottomed out at just below $2.20 in May. And this is after a really volatile year in calendar year 2022, when because of the Ukraine oil cuts a slow, we’re because we’ll just we’ll just do that we’re because of Ukraine or there was high demand everywhere and everyone was trying to get away from Russian natural gas in that calendar year.
U.S. prices hit nearly $10, but that was nothing compared to what happened in the rest of the world. With prices for several months being above 50 and even approaching a hundred in a few areas, which still boggles my mind that we actually hit those numbers that way. 2023 was much calmer. And the reason for it is twofold. Number one, that the United States is not just a producer, an exporter of natural gas, but it does so using a series of technologies that are broadly not applicable in the rest of the world.
The shale technology and fracking. Because of this, the United States has a break even price in our pure shale natural gas fields, typically below five in some places below $3 per thousand cubic feet. And second, we get a lot of associated natural gas production that comes from our shale oil operations, which, you know, technically based on how you run the numbers, that could be free anyway.
It means the United States is the world’s largest producer of natural gas, kicking out about 120 billion cubic meters a year. And most of that is trapped in the system at home because moving natural gas from A to B is kind of difficult. There’s really only two routes. One is to have a pipeline network that sends it from production to consumption locations.
Usually those are within individual country because natural gas being a gas is hard to store. And the U.S. does have the world’s largest system for distribution by far. The second option is to chill it down to -300 odd degrees into a liquid form and then put it in onto a special sea tanker to send it across the ocean to someone who has a specific receiving facility, who can take the liquid and reclassify it without it blowing up.
All of that is as expensive as it sounds. So what happened in 2022 in Europe was the Europeans used to be on a pipe system that brought in stuff from northwestern Siberia for the most part, and that gave them access to reliably, large and reliably cheap supplies. So when the Europeans decided to move on from the Russians, they had to go to some other piped suppliers that they have, specifically Algeria, Libya, and especially Norway.
But that wasn’t enough. So they had to go out and tap the world for liquefied natural gas, which is not available in large volumes in the way that piped gas from a neighbor can be. And so prices went up and up and up and up. And in the United States, we sent everything that we could and that allowed the Europeans a degree of energy security, but only at a very, very high price point.
What we’re seeing now is the slow motion so far, slow motion degradation of the Russian system, because the pipes are all oriented towards Europe and they are falling into disrepair because they’re not being used. And the Russians are using all their technical experts to maintain their war effort. They do have a couple of liquefied natural gas facilities, some in the Far East and the island of Sakhalin, north of Japan, and some on the IMO Peninsula in far northwest Russia.
But it is foreigners who provide the technical skills for those facilities to operate. And as those technical skills are increasingly withheld, these facilities will fall into disrepair. And well, let’s just see when you’ve got a refrigeration unit that is dealing with billions of cubic meters of flammable materials and something goes wrong, something goes wrong all at once. We haven’t had any industrial accidents at these facilities yet, but it’s only a matter of time, one year to year, five years.
I don’t know how long before those facilities go offline and then Russian natural gas will be gone. Getting it out by other means is nearly impossible. There are very few countries that can do LNG liquefaction. China is not on that list. Most of them are part of the Western alliance plus Japan that is backing Ukraine. And if you’re going to get a pipeline for the small peninsula to populated China, you’re talking about the…
Read More: US Natural Gas and Global Energy Supplies