On the cusp of a new US prosperity

As the next US presidency steps into a new age of fortune based on shale gas, Australia will be in the front line of global ramifications.

While we weep for the US in the wake of Hurricane Sandy, don’t it let obscure the amazing change ahead for the world’s largest economy. I believe that the 45th US presidency will usher in a new era of American prosperity based on shale gas.

We keep babbling about the Asian century but both Asia and Australia will have to cope with the new US, where neither Australia nor Asia will be a winner. Europe is a big loser. Australia may return to the winner's circle but it will require a totally new approach to energy which cannot happen under the current policies.

In the words of the veteran global energy guru Thomas Drolet, "shale gas is not an energy evolutionary step, it's a revolutionary step."

"Most changes in the fuel sourcing to our energy systems of this world, especially electricity, have happened in an evolutionary way. This one is revolutionary,” Drolet says.

"I see shale gas being the dominant fossil fuel used for electricity generation and very much in chemical process industries for the next 10, 20, 30, 40 years, which is going to give us that precious time that the world needs in order to sort out its beliefs about where energy systems should go in the long term.”

And Drolet’s vision is happening.

There are about 50 new petrochemical plants being erected.

The American Chemistry Council says the shale gas has reversed the fortunes of the rust bucket industries like chemical, plastics, aluminium, iron and steel, rubber, coated metals, and glass. And this has spread to a raft of other industries and it is one of the forces that has been driving US share prices. Many manufacturing plants are being shifted out of China back to the US.

Americans believe that by 2020 they will not need any oil from the Islamic world.

Now let’s look at just some the global and Australian ramifications.

– Global oil, gas and steaming coal prices are unlikely to recover significantly as surplus energy, replaced by US gas, hits the world markets.

– The oil producers in Middle East have not understood the implications, although in fairness their reserves are running down. The social ramifications of lower Middle Eastern revenues will make it difficult for governments in the area.

– Australia is also in the front line. About 100 million tonnes of US thermal coal has been diverted to international markets. US coal will cap coal prices and make life really tough for the high-cost Queensland and New South Wales steaming coal industries (Swan's miserable mining confusion, October 29).

– Australia is a global leader in LNG production but the huge costs involved in producing and transporting LNG will make our customers (Japan, Korea and China) uneconomic against the US. Although protected by contracts, we are a high-cost LNG producer and will suffer in the long term.

– Australia probably has vast reserves of shale gas and we could be a big beneficiary but our chaotic energy policies are simply wrong for the current era and prevent development. Whoever wins the next election (Coalition or Labor) will have to change the energy policies as America becomes a global leader in carbon reduction, not by carbon taxes or emphasis on high-cost renewables but by encouraging gas production.

– Because energy coal will be cheap, demand and carbon emissions will be boosted in Asia. However China will be looking to emulate the US and develop its own shale gas.

– Poor old Europe is saddled with high-cost Russian and Middle Eastern energy. More and more European chemical operators, including Shell, are switching their operations to the US.

– Our two largest miners, BHP and Rio Tinto, will be affected by the depressed steaming coal prices. (Coking coal used for steel making is not as depressed ). BHP, of course, has a major stake in US shale gas production. While BHP overpaid for some of its shale interests, longer term it will be a winner.

The sad thing is that while we watch Hurricane Sandy’s devastation there is very little understanding in Australia of what is really happening in the US.

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