The Peter Zeihan Podcast Series - Hurricanes in the Gulf, Offshore Oil and the Energy Sector || Peter Zeihan

Episode Date: September 17, 2024

The most recent hurricane that tore through the Gulf of Mexico has sent ripples through the insurance industry thanks to all the property damage, but what will its impact on the energy sector look like? Full Newsletter: https://mailchi.mp/zeihan/hurricanes-in-the-gulf-offshore-oil-and-the-energy-sector

Hey, everybody, Peter Zahn here coming to you from Cove Bay in Barbados. It occurred to me that the Gulf of Mexico just got hit by a hurricane, and I wanted to tell you why it doesn't really matter. Well, I mean, it does matter. You do property damage, especially in an era of rising sea levels and bigger hurricanes. Obviously, that has an insurance application that hits us all, because insurance companies then have to make up for it either by higher premiums or by charging everybody else more for insurance.

So it does ripple through the system. But from an energy point of view, it doesn't really matter. The United States is no longer simply energy independent. We are now a net exporter of over 4 million barrels per day, not of crude, of refined product. And that puts the United States into a category that no other country has ever been in terms of being an energy power. Now, the Gulf of Mexico used to be one of our major energy positions, and back when I was working at Stratford and the yachts, part of my job was to basically chronicle how much stuff went offline. long it would stay offline and that gave us price increases that would last not for days or weeks but

months and even a couple of years sometimes because it took a long time to repair the damage to go out and unentangle what happened on the seabed with the pipelines it was expensive it was laborious and we would feel it for a long time not anymore one of the many weird things about the shale revolution is that all of the production sites are on shore and unless you get so much rain that everything floods at your field, you're talking about a time to bring them back on that if it goes off at all is measured in days, and you can bring on a completely fresh well in weeks. So we have seen the price argument and the national security argument for energy production in the offshore Gulf of Mexico dwindle and dwindle and dwindle. And so even though the most recent hurricane

just plowed through some of the best production real estate the Gulf of Mexico has, it only took offline somewhere between 650 and 750,000 barrels per day, which not that there's an insignificant amount, but the United States, if you include things like associated production from natural gas liquids and condensate, we now produce close to 20 million barrels a day. So you're talking about less than a 5% reduction. And the shale guys are already spinning up their drills

to bring more production online to displace it, and it'll be weeks to months before the. the offshore producers can even pretend to catch up. The price structure just has changed so dramatically. For natural gas, it's actually even a little bit better. We're talking about 750 million cubic feet per day. That is right around 1, 1.5% of U.S. natural gas production. So we'll barely feel that outside of local markets at all.

And same thing. The shale guys are going out to gas wells to supplant it. So think of it this way. If you're in the Gulf, you are now the piggy bank. anything go drastically wrong with U.S. shale production, the reserves in the Gulf will be there for another generation. But it's probably going to be another generation or two before that's irrelevant. All right, that's it for me. Take care.