For many, the big news story in 2013 was about popular entertainment programs such as “Duck Dynasty.” But the really big story is a possible economic and social fabric game changer — the emergence of a domestic energy revolution.
In the 1950s, energy was really cheap. Oil prices were about $2/bbl. and gas was about 20 cents a gallon. Since energy was so cheap, it was used freely with little thought given to conservation. For example, buildings were often minimally insulted except in extreme climates. No one was concerned about operating costs of high-performance cars that got less than 10 miles per gallon.
There have now been two generations that have experienced periods of relatively high and rising energy costs. But this is about to change. A major structural change is under way to the fundamental economic underpinning of our economy. It will cut across all sectors just like the OPEC oil cartel’s effect on oil prices in the 1970s.
Some idea of the strength of the current energy boom is the relatively small increase in natural gas prices recently in response to record breaking cold weather that has affected some parts of the U.S. Even with recent winter spikes, natural gas for February delivery was only $4.30 per million British thermal units on Jan. 8, about one-third of the price paid in Europe.
There have been frequent reports about the adverse impacts of natural gas on Appalachian coal. Also affected are the railroads and barge lines that serve these markets. However, some railroads are experiencing booming oil traffic coming out of North Dakota. Similarly, barge lines should benefit from planned new investments in chemical plants.
Germany’s BASF, one of the world’s leading chemical companies, announced recently that it earmarked about $4 billion in annual capital spending in the U.S. compared to the current $500 million per year through 2017. The spending will go toward the expansion of chemical plant capacity based on low cost domestic natural gas.
The next 40 years of energy in the U.S. will be very different from the last 40. The positive changes are only just beginning, including for the barge industry.