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