United States production of oil is booming, increasing by 15 percent over the past year — the largest year-over-year gain by any country in two decades. Contributor Michael Butler sees that trend continuing with the help of some policy changes.

Contributor Michael Butler is CEO of Cascadia Capital.

In December 2013, the Energy Information Administration (EIA) reported that the United States will continue to produce abundant amounts of oil and natural gas through 2016, with a spike in natural gas production being likely over the next two decades.

Rig used for drilling for oil in the Bakken shale of North Dakota
Rig drilling for oil in the Bakken shale of North Dakota

Based on recent activity and market forecasts, we at Cascadia Capital believe oil and gas production will continue to ramp up in 2014, as the United States is now poised to become the largest producer and a net exporter of oil in the world.

While there is agreement that the U.S. will continue to ramp its oil and gas production, there is not alignment on where it should be consumed. The Senate Energy and Natural Resources Committee has, to date, refused to lift the ban on crude oil exporting based on conflicting political views: One side believes the ban is outdated, antiquated and hinders production potential, while the other believes a prohibition on exporting will lead to sustained, artificially low energy prices in the U.S.

Essentially, there is a wealth transfer from energy producers to the manufacturing sector: Lower energy prices will, in turn, support creation of well-paying, blue-collar jobs and a stronger overall economy. Manufacturing industries like chemicals, aluminum, and others — all of which count energy among their highest operating expense line items — will benefit greatly from lower energy prices as well, which has the power to usher in a sort of manufacturing renaissance here in the U.S.

Politically speaking though, there is not a lot of support for the energy industry outside of those states that benefit from the energy resource production. The only real leverage energy producers have is the ability to curtail production. While it’s unclear when they would want to use that leverage, there does come a point at which it won’t make sense to increase oil and gas production.

However, we do not believe that we will reach a point at which oil and gas producers will curtail production. Over the next three years, energy companies will gradually be allowed to export, and U.S. manufacturers will be in the position to capitalize on the many benefits of low energy prices.

We project that the economic benefits of increased oil and gas exportation, along with political pressure from China and others, will gradually lead to the Senate Energy and Natural Resources Committee embracing a more robust export policy that will drive long term benefits in the manufacturing sector.

Michael Butler
Michael Butler

Michael Butler is Chairman and CEO of Cascadia Capital, a diversified investment bank serving both private and public growth companies around the globe. Michael leads the firm’s Energy Environment and Sustainable Technologies practice.

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