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It takes years to permit and actually plan new production. The world is well on its way toward a very serious energy crisis.

The story in the USA energy wise for the last 20-years isn't shale. It's Natural Gas. More specifically the Marcelus and Haynesville. The Marcelus is refered to as the "Beast in the East", it's size as a field is truly stunning. Also, most of the infrastructure for these fields was already in place making infastructure cost to develop them minimal. The US has at least a couple of centuries worth of cheap Natural Gas. And there is a 2nd Marcelus size field in Canada by the name of Montney/Duverney.

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founding

Suspect may be correct over 5 years but market is currently focused on short term data which indicates ample supply of oil. Global instability has not affected supply or prices at all recently. Personally see the direct opposite and oil at $50 rather than $100 over next few months. HNY

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Dec 28, 2023·edited Dec 28, 2023

Russell, that is true for crude oil production and I don't doubt that the WTI crude price will increase in the coming years. Nat gas however is the greatest source of energy in North America (and indeed, increasingly in much of the world except Europe due to the geopolitical situation). The gas-oil ratio in the Permian will only increase further as the basin matures, and this will displace the already prolific Appalachian reserves. Long-dated (2030 Nat Gas) futures trade at $4.5/MMBtu vs $2.5/MMBtu spot. However even at the higher price, it works out to less than $30/bbl on an energy equivalent basis.

Given that much of end-consumer energy prices are actually attributable to taxes, levies and green subsidies - I question how much a, say $30/bbl increase in crude or $3/MMBtu increase in nat gas will translate into end consumer prices. Ironically this may actually be a bullish argument for energy prices in itself, as the share of household expenditures attributable to primary energy is small, the price elasticity is even lower. Much the same that Iron ore is only a fraction of the final steel price - 1.6 tonnes of iron ore (1.6 * $140 = $224 Iron) vs $550/ton Steel Rebar in China or $1100/ton HRC Steel in the US.

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If you are correct, that may play havoc with the ongoing declining inflation projections and all that means for the assumed Fed rate cuts. I know that is my view, but that it is also a minority one.

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