What Does "Drill Baby Drill" Mean For Real Estate?

On today’s show we are talking about the implications of “drill baby drill” on real estate across the United States.

The US has an abundance of energy, thanks to the fracking revolution. The oil produced in the United States is mostly a light sweet crude. There is a surplus of this crude oil and the US exports a bunch of it. The US imports heavy oil which is then combined with the light oil in order to produce the spectrum of products that an oil refinery is designed to separate from the crude oil.

The US has a lot of associated natural gas coming from its oil wells. This gas is either captured into a pipeline network or flared off at the well head. Some have installed small electric generators next to the well head and are producing low cost electricity.

Natural gas is the preferred fuel source for generating electricity. It is the cleanest of all fossil fuels. But it is also the most inconvenient to transport. By super cooling it and compressing it, the gas can be liquified and transported by ship.

The US exports about 10% of its natural gas production. That is the limit of the liquefaction capacity in the country today. Most of these LNG plants are located along the gulf coast in Louisiana and Texas. Each one of these LNG plants costs a few billion dollars to build. Natural gas is incredibly cheap in the US compared with the rest of the world. The US price is currently hovering around $2.87 per million BTU. In Europe and Asia, the current price is about $35 per million BTU. That is a huge price disparity. The best way to address the problem is to build more LNG capacity in the US.

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