Long Term Henry Hub Gas Decline (Source: Bloomberg)

You are unlikely to have heard of George Phydias Mitchell, but perhaps you should have. Born in Texas, 1919, his Greek father was a goat tender before immigrating to the United States in 1901. Arriving as Mr Paraskevopoulos he changed his name to Mike Mitchell after a paymaster got tired of writing his long name and threatened to fire him. From a position of helplessness, it must have been difficult for him to imagine how his son would change the world.

Hydraulic fracturing, “fracking,” has reshaped the global energy landscape. It has heralded an era of energy abundance. And while the discovery and exploitation of shale gas needed many technological breakthroughs George’s extensive research and experimentation in the 1980s and 90s unlocked these huge untapped reserves. It has transformed the United States from a country worrying about having to build more ports to import gas, to a country worrying about having to build more ports to export gas. Isn’t it good to see there is worry no matter what the situation!

Due to ‘shale’ the US is now the world’s predominant energy producer. Far outstripping Saudi Arabia. This has reinforced American predominance across the globe. The impact of the shale revolution can best be seen in the price of gas. Much of US gas pricing is set at Henry Hub. Henry Hub refers to a natural gas pipeline hub in Erath, Louisiana. Henry Hub spot prices, once comfortably above $6 per million British thermal units (MMBtu), see above, now hover below $2/MMBtu, and in March prices in Texas were actually negative for three days.

The ramifications of Henry Hub’s decline extend far beyond the energy industry. Cheaper natural gas has catalysed a shift away from coal-fired power generation, leading to cleaner air and reduced carbon emissions. Wool and cotton demand have flatlined despite global population growth as synthetic fibres have bought cheaper clothing to all.

The effects of more US gas production on inflation and therefore interest rates over the last decade should not be underestimated. European nations, dependent until so recently on Russian gas, have the ability to diversify their sources. Inadvertently then shale gas is playing its part in the Ukraine war. The Middle East’s turmoils are perhaps made worse by the freedom the US now has to ‘look away’. It is no longer beholden to the region’s oil dominance. Would the first Iraq War have happened had shale come through sooner?

However, the shale revolution is not without its detractors. Environmentalists decry the environmental toll. The story of shale gas embodies the dual nature of technological progress. A catalyst for unprecedented prosperity and a harbinger of profound challenges. As with the ports problem we are likely to worry whatever. On the upside it helps us humans innovate.

It does though continue to amaze how one technological change can affect the world so much. George’s work has made the world richer, the US more powerful. Without it we would be looking at a different global economy, leadership, and standard of living. As US elections approach, it is shale gas that allows the candidates to say pretty much anything they want. Papa Paraskevopoulos’ boy has bestowed them great power. Your boy has done good… mostly.

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