By Tim Daiss, an oil markets analyst, journalist and author working out of the Asia-Pacific region for 12 years. He has covered oil, energy markets and geopolitics for Forbes, Platts, Interfax, NewsBase, Rigzone, and the UK-based Independent (newspaper) as well as providing energy markets analysis for subscription newsletters. Originally published at OilPrice
In a dynamic that shows just how far U.S. oil production has come in recent years, the U.S. Energy Information Administration (EIA) said on Monday that in the last two months of 2018, the U.S. Gulf Coast exported more crude oil than it imported.
Monthly net trade of crude oil in the Gulf Coast region (the difference between gross exports and gross imports) fell from a high in early 2007 of 6.6 million b/d of net imports to 0.4 million b/d of net exports in December 2018. As gross exports of crude oil from the Gulf Coast hit a record 2.3 million b/d, gross imports of crude oil to the Gulf Coast in December—at slightly less than 2.0 million b/d—were the lowest level since March 1986.
U.S. oil production hit a staggering 12.1 million b/d in February, while that amount has been projected to stay around that production mark in the mid-term then increase in the coming years. The U.S. is the new global oil production leader, followed by Russia and Saudi Arabia, while Saudi Arabia is still the world’s largest oil exporter – a factor that still gives Riyadh considerable leverage, particularly as it works with Russia, and other partners as part of the so-called OPEC+ group of producers. However, Saudi Arabia’s decades-long role of market swing producers has now been replaced by this coalition of producers, reducing Riyadh’s power both geopolitically and in global oil markets. In short, what Saudi Arabia could once do on its own, it has to do with several partners.
Meanwhile, U.S. crude oil production, particularly in the Gulf Coast region, is still increasing. In November 2018, U.S. Gulf Coast crude oil production set a new record of 7.7 million b/d, the IEA report added. However, since most of the oil produced in the U.S. is light sweet crude, the U.S. still has to rely on heavier crude blends from Saudi Arabia, Venezuela and others since most American refineries are configured to process heavy crude. On the other hand, a surplus of light sweet crude allows the U.S. to export more oil thus giving the country growing energy geopolitical power once enjoyed almost exclusively by Saudi Arabia and Russia. The increasing amount of U.S. crude being exporter, along with the increasing amount of U.S. LNG being imported (with exports of both fuels projected to increase) is changing energy geopolitics.
U.S. Oil Weapon Possibilities
Evidence of growing American energy clout was evident last week when Secretary of State Mike Pompeo urged the oil industry to work with the Trump administration to promote U.S. foreign policy interests, especially in Asia and in Europe, and to punish what he called “bad actors” on the world stage. Pompeo made his remarks at IHS Markit’s CERAWeek conference in Houston, where U.S. oil and gas executives, energy players and OPEC officials usually gather annually to discuss global energy development. Pompeo’s added that America’s new-found shale oil and natural gas abundance would “strengthen our hand in foreign policy.” He added that the U.S. oil-and-gas export boom had given the U.S. the ability to meet energy demand once satisfied by its geopolitical rivals.
This is the first time, in at least recent history, that American officials have considered using oil production and exports for geopolitical advantage. One of the last times the country had such oil production clout dates back to the years just before World War II when the U.S. held back oil exports to Japan. Consequently, this was one of the mitigating factors that provoked Japan to attack Pearl Harbor in 1941. Moreover, Pompeo’s comments can be viewed as a reversal from the so-called oil weapon that Arab producers have used on the U.S. and its western allies for decades, including both the unsuccessful 1967 Arab oil embargo and the 1973 Arab oil embargo that brought the U.S. and its allies to their knees, driving up the price of oil four-fold and contributing to severe economic headwinds for the West and a geopolitical and economic shift that still persists to the current.
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Okay, but is this level of production sustainable?
Even if that slows down, if we (USA) lower use, they have more to export.
True, though the article title says “Forever”, and it seems like I keep hearing how shale oil production is not sustainable, or an investment bubble, or a scam, not to even get started on the issues of pollution, etc.
Yes, the “forever” word looks very exaggerated. And hope that the shale boom does not end in financial carnage. EIA forecasts should be taken with a grain of salt.
In purely economic terms shale oil fracking looks like malinvestment.
When you give it geopolitical meaning, it’s just the sort of short term power boost any good climate change denier would look for to multiply their raw force.
So, at the moment we’re (US) the kind of country that says f*** the future, we’ll take what we want now! Or at least that’s what our “leadership” thinks we are.
That’s the kind of country the U.S. has always been. Just ask the indigenous peoples.
True and its sick.
I’d like to see the figures on depletion times for average wells. That and drilling costs per unit of energy would set the pace.
No one has mentioned the possible results of the old OPEC states implementing fracking themselves. Can this be a factor in overseas fields? That is a technical question that would have an impact on the politics of world energy production.
The speed of the shift away from energy production techniques that rely on burning something is the key to the long term climate effects. That or some major collapse of some sort.
The tinfoil hatt brigade is already asking if “The Jackpot” is a strategy for dealing with these population based problems.
It’s a case where not being cynical enough could get you killed.
To answer: https://www.e-education.psu.edu/eme801/sites/www.e-education.psu.edu.eme801/files/images/L4_F1.png
As to prices:
https://oilprice.com/Energy/Crude-Oil/Profitability-Is-Finally-Within-Reach-For-US-Shale.html
The attempt for lower oil prices at present doesn’t bode well for shale drillers.
Peter,
The curves in your first link are for shale gas not shale oil but the curves look the same for oil.
Thanks for posting them.
Thanks. Info. Good.
I have added some similar curves for oil – as Synapsid already stated there is not much difference.
https://media.springernature.com/lw785/springer-static/image/art%3A10.1007%2Fs11053-016-9323-2/MediaObjects/11053_2016_9323_Fig1_HTML.gif
the bottom picture is on a logarithmic scale.
from: https://link.springer.com/article/10.1007/s11053-016-9323-2
It does’nt matter if it’s break even or a nominal money loser.the u.s. national security state wants an economic weapon against states that will not open their economies to u.s
And allied finance capital.that’s the longterm payoff.the tptb will gently inform wall st and the bankers to play along for a hefty profit using tax dollars or neo mmt methods as a backstop.they’ll probably succeed to.when do they ever lose.
Bingo.
“No one has mentioned the possible results of the old OPEC states implementing fracking themselves.”
my go-to memory for this:
my dad had a fishing buddy(had an airboat, Matagorda) who remains the only “sideways driller”(their term for my young ears) ive ever met.
that day in West Bay, he described what i learned 20+ years later is called “Fracking”, as well as something called “bottlebrushing”. he had been hired, by either the kuwaitis or the saudis(i remember the map in my head) to drive the drill bit in a big branching tree, so as to “…clean out the last of it”.
this is maybe 35, 37 years ago.
when i remembered the memory that this anecdotal answer contains, i looked around to try to confirm it….but the Kingdom seems pretty secretive, or at least did when I looked.
plenty of outside analysis/speculation/daydreaming, but nothing i found all that authoritative or free from shenanigans.
I can say with confidence, though, that the northwestern rim of the Gulf was doing strange things with creative tech.
he said that fracking(turns out likely using frac sand from where i live, now) , and especially “bottlebrushing”, is not something one does to a productive field, as it messes them up.
the USA’s new “oil weapon” is at best a short lived stick to wave around.
but it will never last, due to the simple fact that these are spent fields being literally sucked dry, at great expense and trouble.
as Lambert says, “leave it in the ground”.
Normally hydraulic fracking is part of regular conventional drilling – at least in Northwest Canada – in order to start the oil being released from the bore hole.
I had been working in the patch (not directly related to the drilling itself) from 1981 to 2005, and frack trucks and fracking supplies were always a feature on every well site I have been to – somewhere in the thousands.
The difference in shale sourced kerogen from Oil Shale Oil – is the fact that this is immature oil, in order to release it heat or a combination of heat and chemicals have to be used for extraction. That demands horizontal drilling into the layer and added drilling for the injection of steam or heat from other sources plus chemicals or is surface or subsurface mined.
Shale oil is sourced from “tight deposits” where the oil is trapped in sediments with low permeability, and wher hydraulik fracturing in usually horizontal wells is used to extract it.
https://deepresource.wordpress.com/2012/11/17/oil-shale-shale-oil-and-tight-oil/
ambrit,
Fracking technology is widely available to be hired, and it is hired all over the world, but finding the rocks that would make it worthwhile to do so is not easy, and so far the only area that has really worked is the Vaca Muerta play in Argentina. It’s producing a fair amount of natural gas and companies, including majors, are working to increase production.
The US has a combination of factors that make it hard to expect comparable success in fracking shales in other countries. The geology is unusually favorable, the shales having formed along a seaway that connected the Arctic Ocean to the Gulf of Mexico back in the Cretaceous (later dinosaur time,) and the region has been explored and drilled to a greater degree than anywhere else on the planet is my guess, and there’s a great deal of infrastructure already in place. Also, in the US the national government doesn’t own the mineral rights to the country and that is very unusual. It means that mineral owners can be paid a lot of money for the right to drill for and develop oil and gas, and that’s a big boost that we don’t see elsewhere. The decision rests in the hands of individuals not the gummint.
China reports shale potential (they want natural gas especially) but they’ve had a lot of trouble dealing with the geology, which is complex and the source rocks fairly deep. The Bazhenov in Russia is said to be a possibility but the rocks are lousy according to Western geologists who have worked with it; still, the Russians have developed an awful lot of resources where conditions aren’t favorable so if anyone can make the region work it should be they.
Thanks to one and all for the tutorial. Now the “exceptionalism” of the North American shale oil boom becomes clear.
I wondered because I personally knew some petroleum geologists that clued me in to natural gas and the hydrogen sulfide content problems. Around here, in the Tuscaloosa Trend fields, there are lots of proven gas wells that are being capped and left so due to the expenses related to ‘sweetening’ the gas.
As the saying goes: “We’re toast.”
Do you mean, “physically possible” or “will help bring forward the end of humanity by inducing a climate catastrophe even earlier”?
This seems to me to be exaggerated, even though there is no question but that a central component of US foreign policy for decades has been to maintain control over oil one way or another.
First off, the Gulf States maintain their hold over the US not by threatening oil supplies, but by using their cash to buy influence. This won’t change (although low oil prices reduce their ability to do this). And no matter what the US does with shale oil, Saudi crude is still the key ‘slack’ in the system, so they have immense influence on price.
Another issue is that the US surplus is in the very lightest tight oil crude, which is limited in its usability as there are very few refineries able to process it – this is why the US still needs heavy Canadian and Venezuelan crude. The only alternative to this is to build lots more refineries and this isn’t going to happen.
And finally, the US has simply lost control over the demand side. The Iranians are still selling oil because the Chinese and Indians and others are not accepting Washingtons instructions. Europe has Russia as a balance to the Middle East for supply. The Chinese are working very hard at electrification to reduce their demand (this is their version of geopolitical oil politics).
The only thing a big surplus of tight oil will do is destroy the planet, potentially lose Wall Street hundreds of billions, and may destabilise the Middle East if it keeps oil consistently below 50$ a barrel. Other than that, its great.
The Middle East is already destabilized. Just ask a Palestinian. Or an Iraqi. Or any number of indigenous Arabs who’ve lived in the area since it was carved up by colonial powers. Divide and conquer. And destabilize. That’s been the game plan for eons.
Israel’s Yinon Plan – outlined in a 1982 article entitled “A Strategy For Israel in the 1980’s” – admits as much. It morphed into the “Clean Break” policy document (“A Clean Break: A New Strategy for Securing the Realm”) authored by prominent neoconservatives during the Clinton years and enacted during the Bush years, continuing to this day.
The horrors in the Middle East are every bit as much about Zionism as they are about oil. Some would even say more so, as Israel and its partisans have essentially cleared the U.S. government – even the formerly non-partisan State Department – of any pro-Arab voices, who are smeared as “Arabists, ” thereby eliminating any possibility of a settlement, which they don’t really desire anyway. They never had any intention of creating “two states.” The plan all along has been to expand (“Eretz Israel”) and provoke, and then make any retaliation appear to be aggression on the part of “crazy Arabs.”
The history of colonialism in the Middle East as practiced by numerous world powers over the years, combined with the Zionist ideology and it all entails… well, let’s just say that the people who run the world are very sick indeed.
Folks:
The real question is –
Why is one of the most developed countries’ of the world exporting raw materials ?
Adding value by refining or by creating petrochemicals before exporting ought to be a goal. This means more profits, more tax revenue, more employment.
Simply exporting raw materials is what 3rd world countires do.
The US still has a net deficit in both crude oil and total petroleum products.
https://www.eia.gov/todayinenergy/detail.php?id=38672
My understanding is that the increase in raw crude exports is due to the refineries in Texas and Louisiana being unable to handle the lighter, sweater crudes. So oil from the Permian basin is exported while those refineries import heavier sour crude from Saudi Arabia, Venezuela and Mexico.
Another Scott,
That’s pretty much it.
The more I read, the more I get the impression that investing in Jobs in the US is the last thing the investor class wants.
Look at the costs, especially Health Care.
USA exports of refined oil are just as large.
Lots of refineries in the USA.
Heard of the plastics belt? Cheaper to make new plastics than recycle the forever ones we’ve already got.
https://www.desmogblog.com/2019/03/05/health-risks-fracking-shale-industry-plastics-belt-ohio-river-valley
I think you meant, “Adding value by refining or by creating petrochemicals before exporting ought not to be a goal for any nation on the planet, given the realities of climate change”.
“given the realities of climate change” That’s funny. Just because you happen to think all is lost and the future is dire because of ‘scientific consensus’ does not mean that bullshit rules the day just for the other guy. Energy tax on other countries products gives a scoffer a built in cost advantage. If people can be convinced to do that to themselves…..you can’t expect ‘deniers’ to do anything except chuckle and take advantage of the situation. Just for a moment think about the scarier tales of global cooling and the advantages of securing supply in a dire situation. We hear all about the lies of others and little about the humility which counsels an uncertain future still has not happened.
The real answer is –
Global trade in the neoliberal era has always been about the in-between and not the countries doing the trading.
aye! the moral universe of a Flea.
yay, us.
https://www.poetryfoundation.org/poems/46467/the-flea
And more growth, and more people, and more environmental destruction. All because we can’t think outside the parameters of “jobs” and “profits” and “tax revenue.”
Simply exporting raw materials is what 3rd world countries do. Just move your country labels.
As Bob noted at 5:36 am we are entering third world country behavior. In addition to crude exports from Texas, in my neck of the woods I see logging trucks carrying tree trunks to Canada.
Cheer loudly for our lack of status and low standard of living. We are exceptional!
Also, Australia, Canada and New Zealand are massive resource extractors.
Was talking to a decades long employee of a large hardwood lumber mill in central Ohio. They process 12-15 truckloads of trees a day. Largest customer is China, they have full time sales reps on the ground there.
Was talking to a local woodshop owner who knows the market well. The Chinese search for distressed mills and walk in with cash offers to buy a year’s worth of production up front. Local mill owners despise the practice, but it’s inevitable that someone gets in trouble and takes the cash.
I’ve scoured the interwebs on woodworking forums and YT, littered with everything from hobbyists to tradesman. I see what they pay for hardwoods. I can get in my car and buy 10 board feet an hour away at wholesale prices half to 2/3’s less than what they are paying. I can only imagine consistent multiple container load pricing.
Stable suppliers of heavy crude in the Western Hemisphere must be alienated. Because the hegemon will always be the hegemon. I am sure there are books in the Bible belt that spell that out. Life is not just simple but preordained. Western civilisation is working its way backwards to the era 2 to 3 millennia BC.
I think we’re working backwards toward the equivalent of 476 A.D. or thereabouts.
The US will be the dominant power until either:
1. It’s oil runs out
2. Global warming destroys so much infrastructure civilization as we know it collapses.
Is that an accurate summary?
Nailed it first time.
Don’t forget the very real possibility of war. And nuclear war at that.
The Persian Gulf Cooperative Council of Arab States, know as the Gulf Cooperative Council (GCC). Are a group of countries banding together for protection. Unfortunately for very good reasons they cannot trust each other. So they reach out to the US, GB, France and Israel for protection. In recent years Russia and China have become major players in the GCC protection racket. In Israel’s case The Kingdom of Saudi Arabia is the one Arab State seeking its protection. We live in interesting times.
So, why did the price of gasoline rise at the pump with just the announcement of imminent hostilities in Venezuela and Saudi export cuts? … Nevermind.
Restricting oil supplies to Japan was an _aggravating_ factor that helped the Japanese justify going to war, at least internally. Another was the willingness of successive Imperial governments to spend whatever required to build a navy and army that would be up to the task of dominating the Pacific. The main mitigating factor was uncertainty over how the US would react.
Of course, the cost to environmental and climate damage are not a factors to consider.
Not in the “real world” inhabited by many of the commenters here, or that similarly fake world in which most politicians conduct business. They are the grown-ups, you see, and activists are mere children who don’t understand. And that is how the world ends.
Bingo.
The environment, human welfare, et al are “external costs” that don’t factor into most economists’ worldview. And MMT, which I know is popular among many here, won’t solve the myriad problems that our economic way of thinking creates. In fact it will exacerbate many of them. It may help raise wages and bring universal health care, but it certainly won’t help our environment.
“But it will pay for the Green New Deal!” you say. Uh, the Green New Deal is nonsense. It’s a fairy tale, like the recycling meme, only on a much grander scale. The only way to “save” our environment is to realize that we are but one tiny aspect of the larger whole, and to stop violently extracting everything the earth produces (not just oil) and commodifying it. We have to massively reduce our consumption. Aside from indigenous peoples who still live by their ways, and perhaps some modern incarnation of “hippies” and other assorted “oddballs” who truly live to smell the flowers, I’m not aware of anyone doing this, or even seriously trying to (myself included). The Green New Deal is just another market-based “solution” which will in no way reduce the devastating destruction we’re wreaking on Mother Earth.
Market thinking has permeated every aspect of society. Something more akin to a steady-state system, which doesn’t depend on perpetual growth for survival, is the only sustainable way to live. Obviously, any system whose sole raison d’etre is the insatiable desire for profits is in direct opposition to anything resembling sustainability, not to mention sanity.
Simple living is hard. I have trouble making even small changes to the middle class, suburban way of life I’ve become accustomed to. All of mainstream society – all of “modernity,” if you will – is like one giant addiction. I’ve conquered my alcohol and drug addictions (though I sometimes get so despondent over the state of the world that the thought of escaping into a nice high is quite appealing, despite all the negative effects I know it will have). But the disease inherent in our modern way of living is proving to be even tougher to overcome.
All Green New Deal [GND] happy talk aside, our way of life depends on fossil fuels particularly petroleum products. Why is our country in such hurry to export a critical resource without any plan ‘B’ for our future? Our ‘leaders’, if that is the right word for them, care nothing for the lives of our children and apparently either have no children or care very little for their own children. Or perhaps it is more accurate to say our Corporations care not for us and very little for the future.
And by *forever* we mean maybe a generation or two at most, and/or until heavy crude also peaks in the US or globally. ; )
Being long term neutral, self sufficient and neither exporter nor importer, would be the lowest risk geopolitical position. If there is more, leave it in the ground for future generations. Not obvious?
Also the new oil comes with a relatively high price and with a particularly high environmental cost. Resources better spent implementing existing means to use less. Note: implementing, not inventing. Other 1st world countries already figured out how to deliver higher standards of living using less energy.
I don’t trust the information in this article; things have been omitted, like, long term fracking facts. We might be the biggest “producer” and exporter of oil but that isn’t telling us anything right now except what we already knew – that the decision has been made to subsidize the oil industry regardless of the fact that it will never pay for itself. How very socialist. Tsk tsk. If our producers/refiners are doing this to put the other OPEC countries out of business because they don’t have good technology, maybe that’s how we will justify it. But it always looks like competition without a goal to me. It would be so much better to perfect the technology to turn all the plastic garbage back into oil. Where’s that effort? If the answer is “too expensive” it is clearly a lie.
Did you not realise that most supposedly capitalist nations are, in reality, highly socialist – at least for the wealthy?
Well, that didn’t take long – selling the future to throw our weight around now. It would be better, in every way, to leave it in the ground, if only to protect us a bit longer when oil finally collapses. (Guess I’m a fatalist, because it seems obvious to me that there will be no serious, large scale attempt to “change” until the things are so dire it will be too late)
The bottom line here seems to be money. Somehow oil industry leaders have convinced the public that developing long term, sustainable sources of energy and employing them efficiently is less important than the industry’s ability to continue making as much money as possible by exporting their product, i.e. refined oil and gas. And as long as they can continue exporting the nation’s real wealth, Western bankers and politicians can continue exporting debt.
Plan B appears to be putting the military in charge when Western bankers and their 1% clients have sold off the country’s last remaining natural resources and off-shored it’s last remaining industries in pursuit of more zeroes for their bank accounts. The idea is to motivate those hitherto ‘useless eaters’ to be willing to fight for their own survival by stealing the wealth of other countries – and not coincidentally adding yet more nominal wealth to the portfolios of the world’s already bloated oligarchies.
Take a look at Oil, Power, and War: A Dark History by Matthieu Auzanneau and Richard Heinberg. What you will find is a history of serial treason and short term thinking committed by the fossil fuels industry against the economic and security interests of United States and other Western nations. To the leaders of that industry, the finite nature of fossil fuels reserves is no mystery, no surprise. It has been a constant nightmare forcing them to rely on increasingly expensive sources of ‘product’ for their refineries and, as they exhaust the last remaining reserves within US and Western nation geographical boundaries, the armed forces of their respective host nations. Accidents of geology have placed industrial civilization’s last remaining reserves of what Trump calls “our oil” beneath the sands of Middle Eastern deserts.
Nice… and consistent in terms of subsidies. To heck with emissions and climate change, to heck with the environment and water resources, and to heck with profitability. If we want your land for a pipeline to carry oil for export, we’ll declare eminent domain under public purpose and take it. After all, “We’re an empire now, and when we act, we create our own reality. And while you’re studying that reality — judiciously, as you will — we’ll act again, creating other new realities, which you can study too, and that’s how things will sort out. We’re history’s actors.”
… “Forever” is a long time.
no one here seems to take abiotic oil seriously, except maybe here (Synapsid Mr 21, 11:46 am):
“the Russians have developed an awful lot of resources where conditions aren’t favorable…”
why? when “fossil fuel” is so obviously a story.
Russian scientists presented their experience at a conference in Santa Fe (Los Alamos) in 1994,
when Russia still believed in US’ good faith. after that, Russia classified their drilling technology.
see Russian scientists vindicated: https://journal-neo.org/2016/03/05/needless-wars-over-oil/
Given (from memory) that Putin publicly announced that Russian oil cost $3 bbl “out of the
ground”, same as Saudi, the implications are huge.