US exports oil and gas as demand starts to fall

In recent years, the United States has become much more self-sufficient when it comes to energy. A surprising decline in US petroleum consumption paired with increased production have combined to erase much of the American dependence on foreign oil imports. This week, the US reached another energy milestone when it was announced that America is now a net exporter of natural gas.

According to the Wall Street Journal, the US exported an average of 7.4 billion cubic feet of natural gas per day in November. Over the same period, only 7 billion cubic feet per day was imported. It has been almost 60 years since the US exported more natural gas than it imported.

The news on natural gas comes three years after US oil imports balanced for the first time since the 1950s. In 2013, US crude oil production was greater than the amount of oil imported for the first time in decades. 

The increase in US oil production is due largely to fracking and other new technologies that allow oil that was previously not recoverable to be harvested profitably, even when the price of oil is low. Shale oil production has risen even as prices fell. According to CNN, fracking now accounts for more than half of US oil production and has increased US output to a 43-year high. Since low oil prices have actually depressed production, US oil output can be expected to increase further as prices rise.

American oil production has increased to the point that US oil companies are now exporting oil for the first time in 40 years. In December 2015, Congress lifted a 1975 ban on exporting domestically produced oil. Six months later, oil exports averaged more than half a million barrels per day and US oil was being shipped around the world.

The shift from importing to exporting is also due to a decline in US oil consumption. After steadily increasing since the early 1980s, the 2008 financial crisis caused oil consumption to plunge. However, even after the recession was over, oil consumption remained low. In 2015, the White House Council of Economic Advisors pointed out that 2014 oil consumption was lower than 1997 in spite of an economy that was 50 percent larger. The decline was due primarily to a drop in vehicle miles traveled, but higher fuel economy was also a factor.

So far, the oil consumption “surprise” in the US has been greater than in other countries, but consumption is expected to fall around the world. Forbes points out that the discussion has moved from concerns about a “peak oil” decline in production to peak oil consumption. New technologies to conserve oil and alternative energy sources are pointing to the possibility that worldwide oil consumption may soon start to decline.

The decline in oil prices over the past few years is a perfect illustration of the laws of economics in action. As oil production, the supply side of oil, increases, the price of oil, the demand side, decreases. Additionally, decreases in demand due to less driving and more fuel efficient cars also contribute to falling prices.

Ultimately the markets corrected and solved the problem of high oil and gasoline prices without government interference. In the future, they will also solve the problem of what to do when oil supplies eventually become scarce or inefficient. Tim Worstall noted in Forbes, “As Sheikh Yamani pointed out, the stone age did not end because of a shortage of stones. And it looks like the oil age will not end for a shortage of oil, rather simply because we’re finding better ways to get our energy.”

Originally published on The Resurgent

New oil find in Texas should keep prices low

The U.S. Geological Survey announced this week that it had discovered the what may be the largest untapped supply of oil ever found in America. The discovery sits in the Permian Basin of West Texas near Midland, an already booming oil town that was the childhood home of President George W. Bush.

The find comes amid a two-year oil price slump that has caused pains among Texas companies as well as foreign oil producers like Saudi Arabia, Venezuela and Russia. Many oil companies in Texas have already filed bankruptcy and many more hover on the brink.

“The fact that this is the largest assessment of continuous oil we have ever done just goes to show that, even in areas that have produced billions of barrels of oil, there is still the potential to find billions more,” said Walter Guidroz of the USGS. “Changes in technology and industry practices can have significant effects on what resources are technically recoverable, and that’s why we continue to perform resource assessments throughout the United States and the world.”

The new find and the oil slump are both made possible by new technology that allows oil to be harvested that was untouchable in the past. Hydraulic fracturing (fracking) and the ability to drill for shale oil have vastly increased the amount of the world’s recoverable oil reserves.

The New York Times reports that US domestic oil production has almost doubled in the past few years, largely due to these new technologies. As US production of oil has increased, the need for foreign imports has fallen. Foreign oil companies have struggled to find new markets and prices have fallen as a result.

Over the past few months, oil prices have recovered from less than $20 per barrel to the current $40-50 range. Many wells are not profitable at current prices and have shut down. Likewise, new exploration and projects have lagged because they are not cost effective without a higher price for oil.

Most analysts have predicted that oil prices will take several years to recover to the $60 range where many more wells and projects would be profitable. The likelihood of oil returning to $100 per barrel prices that were frequently seen from 2008 through 2014 seems remote.

The new oil discovery also serves as a reminder of how rapidly things can change. Alarmists have been predicting for years that the world has reached the point of “peak oil,” the point where oil production has reached a maximum and will begin a decline due to diminishing reserves. Far from it.

In the past few years, US and world oil reserves have increased markedly due to new discoveries and new technologies. At the same time, the world is using its oil more efficiently thanks to technological advances in engines and aerodynamics. Even with more people and countries using oil, the world’s oil supplies should be abundant for many years to come. 

Originally published on The Resurgent

Obama and gas prices

As gas prices continue to rise, President Obama is under increasing pressure from both Republicans and the public to take action. Gasbuddy.com, which tracks gas prices, shows an increase of almost 70 cents per gallon in Georgia since Christmas. During the same period, the national average gas price has increased by almost 60 cents. The current national gas price is $3.794 per gallon, while Georgia is a few cents cheaper at $3.703. There may not be any relief in the near future. The Energy Information Administration forecasts that gas prices will stay near $4 per gallon through the summer.

To date, President Obama’s main response has been to blame speculators. In 2011, the president asked the Department of Justice to investigate oil speculators for possible fraud or manipulation of prices. McClatchy Newspapers found the Oil and Gas Price Fraud Working Group, a subgroup of the Financial Fraud Enforcement Task Force, has met “only four or five times since its creation.” President Obama ordered the group back to work last week while at the same time saying that it never stopped working.

Speculators are not the problem. OPEC is the cartel of oil-producing countries that sets the price for much of the world’s oil. The OPEC basket price for March 14, yesterday’s close of business, was $124.29 per barrel. Currently, oil is trading on the New York Mercantile Exchange between $103 and $106 per barrel. Oil is actually selling on the commodities market for less than OPEC is charging. This means that the “speculators” are actually bidding the price of oil down.

President Obama and the Democrats maintain that the president does not control the price of oil and therefore should not be blamed for rising gas prices. The Democrats did not feel that the president was so helpless when George Bush resided in the White House, however. Many blamed President Bush’s ties to the oil industry for 2008’s record spike in gas prices.

While it is true that President Obama cannot take action that will swiftly bring gas prices down, it is also true that many of his policies have contributed to the increase in gas prices. The president’s affinity for green energy and dislike for oil has led to policies that are hostile to oil producers. For example, although President Obama has taken credit for the fact that U.S. oil production is at an eight year high, he failed to mention that the increase was due to drilling permits issued under President Bush.

According to the Institute for Energy Research, the number of offshore drilling permits has fallen by more than 50 percent under President Obama. The percentage of applications approved has fallen from a historical average of 73 percent to the current approval rate of 23 percent. Approval time has increased from an average of 60 days to more than 90. The Obama Administration was held in contempt for continuing its moratorium on off-shore drilling after its executive-ordered ban was struck down by a federal judge. Even before the oil spill, one of President Obama’s first executive actions was to cancel 77 Bush-era oil leases in Utah. Further, the Obama Administration has also unveiled new regulation of fracking, the drilling technique that has made the oil and natural gas booms in Pennsylvania, Ohio, and North Dakota possible. Increased regulation may well lead to fewer permits in these areas as well.

Another high profile decision was President Obama’s rejection of the Keystone XL pipeline. Obama killed the pipeline in January after three years of study. In February 2012, the president lobbied Democratic senators to vote down a Republican bill that would have approved the pipeline according to Investor’s Business Daily, killing the bill a second time. The Canadian oil that would have been piped to U.S. refineries will now likely go to emerging markets in China.

The Energy Information Administration cites the closure of three refineries since September 2011 that supplied gasoline to the East Coast as a factor in rising gas prices. An additional refinery may be shut down in July if no buyer is found. The reduced supply has been partially offset by a new refinery in Delaware City, but has undoubtedly contributed to higher prices. President Obama engineered the purchase of Chrysler by Fiat, but has shown no interest in finding new operators for these refineries.

The Federal Reserve has also increased the money supply through quantitative easing, where the Fed buys securities from banks and expands the money supply. According to the N.Y. Times, the Fed has added more than $2 trillion to the money supply since the economic crisis began in 2008. When more money is in the system, each individual dollar is worth less. As supply increases, demand decreases.

As Republicans on Congress’ Joint Economic Committee noted in report detailed in CNS News last year, “Oil is an international commodity that trades in dollars. The value of the unit of exchange, in this case the dollar, plays an important role in determining the ‘headline’ price for the underlying commodity.” The report further notes that the first round of quantitative easing resulted in an increase of more than $17 per barrel of oil. This is approximately an increase of more than 50 cents per gallon of gasoline.

Another major factor in the high price of gasoline is instability in the Middle East caused by the Iranian nuclear program. The Iranian quest for nuclear weapons predates the Obama Administration, but the president has frittered away time with fruitless negotiations while the Iranians worked and used diplomacy as a delaying tactic.

In the meantime, Obama has done everything possible to prevent Israel from launching a strike on Iranian nuclear facilities, even after Iran attempted a terror bombing inside the District of Columbia in October 2011. He is right that an Israeli strike would probably result in an Iranian blockade of the Persian Gulf causing oil prices to skyrocket, but he seriously underestimates Iranian Twelver religious fervor and their resolve to destroy Israel. The Iranian leadership believes that a Muslim messiah is coming soon and that their mission is launch a nuclear war to prepare the way for him.

A conventional war in the Middle East would be disastrous for oil prices. A nuclear war in the Middle East (or worse: one that reaches American shores) would be even worse. As the Iranians draw close to becoming a nuclear power, there is less time for sanctions to work and less chance for a peaceful solution. The price of oil includes a risk premium for the possibility of war in the Middle East that Obama’s inaction has made more likely.

Finally, President Obama is a bit disingenuous about wanting cheaper prices for gas and energy. In September 2008, Dr. Steven Chu, the man who later became President Obama’s energy secretary, told the Wall Street Journal, “Somehow we have to figure out how to boost the price of gasoline to the levels in Europe.” Chu wanted gas prices to increase in order to coax Americans into buying more energy-efficient cars and encouraging shorter commutes.

Barack Obama himself, in a January 2008 interview with the San Francisco Chronicle that can be heard on HotAir.com, said as a candidate that “under my plan of a cap and trade system, electricity rates would necessarily skyrocket.”  This would have been bad news for everyone, including people driven to purchase electric cars by Dr. Chu if cap-and-trade had passed. Although Congress never passed cap-and-trade, President Obama’s EPA is implementing carbon regulation unilaterally.

President Obama cannot personally control the price of oil, but his policies do have an effect on it. On balance, the president’s policies are contributing to the rising gas prices. The statements of candidate Obama and Dr. Chu are evidence that they knew exactly what they were doing all along.

Originally published on Examiner.com:

http://www.examiner.com/conservative-in-atlanta/obama-and-the-price-of-gas

Obama’s green war on jobs and energy

In spite of acknowledging the need to wean the United States off of Middle Eastern oil, the Obama Administration, prompted by core supporters in the environmental lobby, is waging a job-killing war against two projects that would help the economy, produce jobs for Americans, and, perhaps most importantly, reduce our dependence on oil imported from unfriendly foreign countries.

The first issue is the EPA’s proposed regulation of fracking. “Fracking” is a slang term for hydraulic fracturing, the process of injecting fluids, primarily water, into rocks to create larger fissures. The larger fissures allow more oil or natural gas to flow into the well. The process makes it possible to tap into previously unreachable oil and natural gas reserves. The debate on fracking centers on the Marcellus Shale formation in Pennsylvania and Ohio and the Dakota oil and gas fields. Fracking has also been used safely in Texas since the 1950s.

Opponents of fracking are concerned about the impact on air and water quality. Opponents will likely be heartened by the recent release of an EPA report that suggests that fracking may contaminate groundwater. The Wall Street Journal notes that the report, which has not been peer reviewed, admits that chemicals detected in the water in Pavilion, Wy., where the tests were done, are within acceptable limits. Further, the problematic chemical detected is not used in fracking at all, but is a common fire retardant used in plastic components for drinking water wells. This leads many to believe that the contamination is not from fracking at all.

The decision on whether to allow fracking in the Marcellus Shale is important because of the size of the field. It contains an estimated 500 trillion cubic feet of natural gas. The amount recoverable, estimated at about ten percent of the total, is almost equal to two years of natural gas production for the entire rest of the country. As technology advances, more oil and gas that was previously unreachable can be recovered.

Allowing fracking would not only create jobs in the natural gas and oil industries, it would be a boon to the rest of the economy in the form of cheaper energy costs as well. When energy costs go down, manufacturing costs decrease as well. This makes American products more competitive and helps American businesses grow.

The second project that President Obama’s administration is intentionally delaying is the Keystone oil pipeline. The Keystone pipeline would run from Canada’s Athabasca oil sands in Alberta to American refineries in Texas.

The benefits of the pipeline are easy to see. Most obviously, it would relieve U.S. dependency on Middle Eastern and Venezuelan oil and contribute to national energy security. The additional supplies of oil should also help drive down energy costs. Further, TransCanada, the pipeline’s owner, estimates that construction of the pipeline would create 20,000 construction and manufacturing jobs in the U.S. Other jobs would be created in other industries, such as restaurants and hotels, as well. The effect of lower energy prices would create positive effects across the economy. Total value to the U.S. economy is expected to exceed $20 billion.

The pipeline was proposed in 2008 and approved by Canada’s National Energy Board on March 11, 2010. Since then, the proposal has been winding its way through a labyrinth of state and federal bureaucracies. Almost two years later, no final decision has been made at the federal level.

President Obama had previously announced his intention to delay making a decision on the pipeline until 2013, but a provision in the payroll tax extension bill forces him to make a decision in 60 days, moving up the deadline to late February. Given the enormous economic benefit in a time of economic crisis, why is President Obama delaying the approval of the pipeline?

The answer lies in the makeup of President Obama’s base. Environmental groups that are key supporters of President Obama oppose the pipeline over concerns about global warming, possible groundwater contamination in the event of an oil spill, and basic opposition to any development of the oil sands.

There are problems with this position. One is that if the Keystone pipeline is canceled, the oil sands are still likely to be developed. If the United States does not gain access to this Canadian oil, it will, in all likelihood, go to the Chinese. If the Chinese buy Canadian oil, it will be transported via tankers to China, which is a far less safe mode of transportation than a pipeline.

Even though the United States still imports almost half of the oil that it consumes according to the Energy Information Administration, in 2011 the U.S. became a net exporter of fuel. With additional Canadian oil flowing to U.S. refineries combined with a weakening dollar, U.S. export numbers should continue to improve.

Ironically, Obama’s base is becoming split over the pipeline issue. While environmentalists oppose the project, unions have voiced their support for the pipeline on the grounds that it will create jobs and help the economy. If he decides against the pipeline, President Obama risks losing support to a pro-growth candidate. On the other hand, if he approves the pipeline, environmental activists may support a third party candidate, such as a Green, or stay home.

The interference of President Obama’s EPA with fracking and the president’s long delay in approving the Keystone pipeline are two examples of how President Obama’s commitment to a future green energy system and his environmentalist supporters are hurting the United States today. High energy costs could be somewhat reduced by more oil supplies and more jobs could be created if the president approves these projects.

Read this article on Examiner.com:

http://www.examiner.com/conservative-in-atlanta/obama-s-energy-policies-cost-jobs