Tuesday, May 29, 2012

Center of Gravity in Oil World Shifts to Americas; It's the "Equivalent of a Category 5 Hurricane"

As U.S. oil production ramps up, net oil imports have fallen to a 20-year low of 42.4% in 2012 through April.

The Washington Post reported recently on the new world energy map that is emerging, and it is no longer centered on the Middle East, but on the Americas:

"From Canada to Colombia to Brazil, oil and gas production in the Western Hemisphere is booming, with the United States emerging less dependent on supplies from an unstable Middle East. Central to the new energy equation is the United States itself, which has ramped up production and is now churning out 1.7 million more barrels of oil and liquid fuel per day than in 2005.

“There are new players and drivers in the world,” said Ruben Etcheverry, chief executive of Gas and Oil of Neuquen, a state-owned energy firm that is positioning itself to develop oil and gas fields here in Patagonia. “There is a new geopolitical shift, and those countries that never provided oil and gas can now do so. For the United States, there is a glimmer of the possibility of self-sufficiency.”

Oil produced in Persian Gulf countries — notably Saudi Arabia, Iran, the United Arab Emirates, Kuwait and Iraq — will remain vital to the world’s energy picture. But what was once a seemingly unalterable truth — that American oil production would steadily fall while the United States remained heavily reliant on Middle Eastern supplies — is being turned on its head.

Perhaps the biggest development in the worldwide realignment is how the United States went from importing 60 percent of its liquid fuels in 2005 to 45 percent last year (MP: Net oil imports have since fallen to a 20-year low of 42.4% this year through April, see chart above). The economic downturn in the United States, improvements in automobile efficiency and an increasing reliance on biofuels all played a role.

But a major driver has been the use of hydraulic fracturing. By blasting water, chemicals and tiny artificial beads at high pressure into tight rock formations to make them porous, workers have increased oil production in North Dakota from a few thousand barrels a day a decade ago to nearly half a million barrels today.

Conservative estimates are that oil and natural gas produced through “fracking,” as the process is better known, could amount to 3 million barrels a day by 2020. “We have a revolution here,” said Larry Goldstein, director of the Energy Policy Research Foundation in New York. 'In 47 years in this business, I’ve never seen anything like this. This is the equivalent of a Category 5 hurricane.'"

39 Comments:

At 5/30/2012 5:56 AM, OpenID moneyjihad said...

Surely the Democrats will scramble to ban fracking in light of this news.

 
At 5/30/2012 6:06 AM, Blogger copiun said...

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At 5/30/2012 6:18 AM, Blogger Larry G said...

when you look at our total oil consumption especially compared to other countries:

http://www.nationmaster.com/graph/ene_oil_con-energy-oil-consumption

and put our increased production in context with that total consumption, you realize that decreased consumption totals up to far more than increased production.

In other words, more efficient vehicles and less driving has as much or more impact than increased production.

More and more roads are being tolled these days and that is also going to have an effect on fuel use as on a per trip basis - tolls have a bigger dollar cost impact than fuel cost especially with congestion tolling.

And as long as we are exporting gasoline, making the "energy independence" argument is problematic.

But here's a question ....

what is the cause of the sudden decrease in gasoline prices?

gasoline is now almost $3.00 in South Carolina.

http://www.southcarolinagasprices.com/

what happened?

 
At 5/30/2012 7:09 AM, Blogger juandos said...

Gasoline Prices Are Not Rising, the Dollar Is Falling

Chart 96 month: crude oil, gasoline prices for Seattle, Chicago, & St.Louis

 
At 5/30/2012 7:11 AM, Blogger Larry G said...

so if gasoline prices fall, does that mean the dollar is rising?

 
At 5/30/2012 7:59 AM, Blogger Jon Murphy said...

what is the cause of the sudden decrease in gasoline prices?

The dollar argument has some merit, but it goes well beyond that.

I think prices are falling because:

-The situation in Iran has been defused (or, at least stabilized)

-China is in a slowdown, thus decreasing demand

-Europe is in a slowdown, thus decreasing demand

-The US have shifted towards more fuel efficient vehicles and natural gas vehicles, thus decreasing demand

-World oil production is it record highs, thus increasing supply. This is furthered by encouraging signs from Iraq.

These are why I think prices have dropped.

Interesting side note: the correlation between the value of the dollar (TWEX) and oil prices is R=.35. Also, historically, the dollar tends to lag behind oil prices by about a year. In other words, when oil prices reach a business cycle peak, the dollar will too, about one year later.

 
At 5/30/2012 8:00 AM, Blogger Jon Murphy said...

And as long as we are exporting gasoline, making the "energy independence" argument is problematic.

Energy Independence doesn't mean we hoard our gasoline. It means we are less vulnerable to world supply shocks. SO, we can export our excess gasoline capacity now and still be energy independent because if there was a global supply shock, we would be less affected by it since we can produce our own energy.

 
At 5/30/2012 8:05 AM, Blogger Moe said...

Larry G; I think it's very tough to find uniformity in prices - it's such a regional issue. I know in Washington state prices are up due to a large refinery closure there, while (as you mentioned) prices are falling elswhere. Throw in a hurricane here or there and it's pretty choppy. Location, location,location.
Cheers

 
At 5/30/2012 8:08 AM, Blogger juandos said...

"so if gasoline prices fall, does that mean the dollar is rising?"...

No, not necessarily...

One needs a widely recognized benchmarks to get an idea of the 'real purchasing value' of the dollar for instance...

Consider what is happening in the European Union and the dollar is looking pretty good right now in comparison...

Still the 'real purchasing value' of the dollar has degraded over the last 20 years...

Consider gold vs West Texas Intermediate crude oil from '92 to '12...

 
At 5/30/2012 8:31 AM, Blogger Krishnan said...

The Sierra Club is ready to do battle and shut all this down.

http://online.wsj.com/article/SB10001424052702304363104577390432521371296.html?mod=WSJ_Opinion_LEADTop

We should not underestimate the ferocity of those that consider fossil fuels evil (because it improves the lives of so many ordinary people). We should also not forget what Obama has always wanted to do - with coal, with fossil fuels ...

 
At 5/30/2012 8:39 AM, Blogger Jet Beagle said...

Larry G: "And as long as we are exporting gasoline, making the "energy independence" argument is problematic."

Not sure if it is still true, but one reason we have exported gasoline is that many foreign refineries cannot process heavy sour crude. By contrast, about 75-80% of U.S. refineries can. As I understand it, some U.S. refineries the past decade realized high profits from processing the cheaper sour crude.

I cannot imagine any reason Valero and other refiners would not want to continue realizing the high profits exports enable them.

I can imagine that socialist Democrats might want to screw U.S. refiners and their workers by restricting gasoline exports, all the while canting the ridiculous mantra "energy independence".

 
At 5/30/2012 8:47 AM, Blogger Jet Beagle said...

Someone above mentioned that "energy independence" would insulate the U.S. from global supply shocks. Does anyone remember any global supply shocks from the past 30 years which were not the result of U.S. military action? I'm not meaning the fear of such shocks which drove up world prices. But actual supply disruptions.

I'm not convinced that energy independence would have any impact on U.S. oil prices. That is, unless government tramples on property rights and prevents the export of crude oil by U.S. producers.

 
At 5/30/2012 9:01 AM, Blogger Jon Murphy said...

I'm not convinced that energy independence would have any impact on U.S. oil prices. That is, unless government tramples on property rights and prevents the export of crude oil by U.S. producers.

I wasn't arguing energy independence would affect the US oil prices. I think, if we tap into this oil and increase our refining capabilities, we would be less affected should OPEC decide to embargo us again. We would still see prices rise, but not as much.

 
At 5/30/2012 9:16 AM, Blogger Jet Beagle said...

Jon Murphy,

Perhaps. I suppose we could see some sort of oil embargo if the Saudis had a revolution. Or if Israel bombed Iran. But I'm still skeptical about the concept of energy independence. To me, it's a strategy which could very easily be turned into central control.

 
At 5/30/2012 9:30 AM, Blogger Buddy R Pacifico said...

Larry and Jet,

Much of the refined oil exported from the Gulf is making a round trip back to Mexico, where it once was crude.

Export of crude oil is against federal law, unless given prsidential clearnance.

 
At 5/30/2012 9:31 AM, Blogger Larry G said...

" I can imagine that socialist Democrats might want to screw U.S. refiners and their workers by restricting gasoline exports, all the while canting the ridiculous mantra "energy independence". "

.....

" I'm not convinced that energy independence would have any impact on U.S. oil prices"

well.. if would seem that if that happens...we'd be better off not exporting gasoline, eh?

Also... 3/4 of all countries with oil resources are - Nationalized - freely trample on property rights and seem to do well anyhow....

just saying.....

 
At 5/30/2012 9:36 AM, Blogger Larry G said...

" Export of crude oil is against federal law, unless given prsidential clearnance. "

I saw that somewhere...

but we can export refined crude?

:-)

It just seems odd that we import crude and then turn around and export the refined crude.

If it comes from somewhere else like Mexico -wouldn't it make more sense to refine it where it is extracted rather than paying to transport the crude and then transport the refined product right back?

BESIDES....

HOW MANY TIMES have we been told that high gas prices in the US is because we don't have enough refining capacity... and the anti-govt blather that a "major refinery has not been approved since the Dems got into office"..or some such blather?

 
At 5/30/2012 9:42 AM, Blogger Jet Beagle said...

Larry G: "HOW MANY TIMES have we been told that high gas prices in the US is because we don't have enough refining capacity"

The only time I remember that the U.S. had insufficient refining capacity was after a hurricane or after a refinery explosion.

U.S. refiners have kept up with demand by expanding existing refineries and by improving processes to sharply reduce downtime.

 
At 5/30/2012 9:47 AM, Blogger Jet Beagle said...

Larry G: "If it comes from somewhere else like Mexico -wouldn't it make more sense to refine it where it is extracted rather than paying to transport the crude and then transport the refined product right back?"

If it did "make sense" economically, private enterprise would be doing so right now. I suspect that transport costs are simply not that great an expense.

A petroleum refinery is a huge capital investment. I'm not sure why a refining company would ever want to build one where that investment might one day be nationalized.

 
At 5/30/2012 9:48 AM, Blogger Buddy R Pacifico said...

"Larry G: "HOW MANY TIMES have we been told that high gas prices in the US is because we don't have enough refining capacity"

Much of the refined crude, that is exported, are converted to lubricants. You would not want to cause friction would you? :>)

 
At 5/30/2012 9:48 AM, Blogger Larry G said...

the "only" time ?

come on JETb... just GOOGLE it...

it was the standard excuse before they hit it big in ND...

so the narrative that we lacked refinery capacity went away with ND and Keystone?

sometimes these guys can't keep their stories matching the facts...

 
At 5/30/2012 9:50 AM, Blogger Larry G said...

" I'm not sure why a refining company would ever want to build one where that investment might one day be nationalized"

that's an excellent point!

hard to attract capital investment when you're afraid the country will simply appropriate it after it's up an running, eh?

or maybe it's illegal for the private sector to compete against the National company...

 
At 5/30/2012 10:00 AM, Blogger Jet Beagle said...

Buddy pacifico: "Much of the refined oil exported from the Gulf is making a round trip back to Mexico, where it once was crude."

That's true, but Mexico does not make up even 1/4 of the total exports of refined petroleum products:

2011 petroleum product exports
by destination

Mexico ....... 19.8%
Canada ....... 8.7%
Netherlands .. 8.7%
Brazil ....... 5.6%
Chile ........ 4.3%
Singapore .... 4.2%
Panama ....... 3.6%
Japan ........ 2.6%
all others ... 42.4%

Source: U.S. Energy Information Administration

 
At 5/30/2012 10:08 AM, Blogger Jet Beagle said...

Larry G,

Google what? When did the U.S. have insufficent refining capacity other than after a hurricane or after a plant explosion?

Just because refineries have not been built does not mean refinery capacity is insufficient.

Just because U.S. refiners choose to utilize existing capacity in the West Indies does not mean refinery capacity is insufficient.

Or perhaps we are meaning something different by the words "insufficient refining capacity".

 
At 5/30/2012 10:11 AM, Blogger Larry G said...

@JetB

Come-on Jet you know DANG WELL that for quite a while the Conservatives were raising hell about a "lack of refining capacity" because " the liberals and green weenies would not allow it".

true - right?

It was one of the original wedge issues....

 
At 5/30/2012 10:13 AM, Blogger Larry G said...

Here you go: Mr. Perry himself traded in that narrative:

http://mjperry.blogspot.com/2008/06/no-new-oil-refineries-since-1976.html

https://www.google.com/webhp?sourceid=chrome-instant&ix=h9&ie=UTF-8#hl=en&sclient=psy-ab&q=%22refining%20capacity%22%20site%3Amjperry.blogspot.com&oq=&aq=&aqi=&aql=&gs_l=&pbx=1&fp=d1ed2093efbd31cc&ix=h9&bav=on.2,or.r_gc.r_pw.r_cp.r_qf.,cf.osb&biw=1180&bih=581

 
At 5/30/2012 10:23 AM, Blogger Jet Beagle said...

Larry G,

I didn't ask you when politicians had tried to use refinery capcity as a political issue. I asked you when the U.S. had insufficient refining capacity other than after a hurricane or after a plant explosion. Just because a politician assets something doesn't make it true.

 
At 5/30/2012 10:24 AM, Blogger Jet Beagle said...

Oh, sorry for my last comment. i thought you referring to Rick Perry, not Mark Perry.

 
At 5/30/2012 10:28 AM, Blogger Jon Murphy said...

I do seem to recall a bottleneck in the US refining industry after Katrina. If I recall correctly, a number of our larger refineries were knocked out.

That being said, the US is not near maximum refining capacity, but our refineries are (if that makes sense).

Let me explain: On the East Coast, we just shut down a number of refineries which were refining oil coming from Africa. Our refineries in the MidWest are very busy dealing with the oil boom. If we could easily transport that oil to the Coast, we could refine more oil without increasing our capacity. Alas, currently that is difficult given the pipeline situation.

 
At 5/30/2012 10:30 AM, Blogger Buddy R Pacifico said...

Larry, Here are some of Exxon's refined oil products. Refineries in the Gulf area produce much more than gasoline, and a lot of that is exported.

 
At 5/30/2012 10:30 AM, Blogger Larry G said...

thanks Buddy... good info!

 
At 5/30/2012 11:00 AM, Blogger Jet Beagle said...

Data from the U.S. Energy Information Administration

U.S. refinery operable capacity, 2011:

16.98 million barrels per day

U.S. refinery capacity utilization, 2011:

86.2%

U.S. production of finished gasoline, 2011:

8.74 million barrels per day

U.S. imports of finished motor gasoline, 2011:

0.10 million barrels per day

The U.S. refined 99% of the refined gasoline it used in 2011.

Refined products the U.S. does import include:

unfinished oils
residual fuel oils
motor fuel blending components
distillate fuel oil

As I understand it, foreign refineries have surplus products which they sell to our factories. U.S. manufacturing is as strong as anywhere on earth. It should not be surprising that our nation is consuming refinery by-products of other nations.

As I pointed out earlier, after hurricane and other plant disruptions, the U.S. has imported gasoline. But in normal times, we are producing the gasoline we consume.

 
At 5/30/2012 11:34 AM, Blogger Jet Beagle said...

A little more information about imported blending components, which I found in a 2004 report from the Congressional Research Service:

Because of the boutique gasoline requirements across the nation, much of the gasoline refined in the U.S. is blended near its point of use. In some cases, it makes economic sense for U.S. refiners to produc common gasoline components and then add motor vehicle blending components later. So the U.S. refineries maximize production of the common components and add blend components from foreign refineries.

As I understand it, economies of scale and refinery specialization - not capacity constraints - account for the importation of motor vehicle blend components.

The 2004 CRS report does state that refined gasoline of various types - finished gasoline, reformulated gasoline, and gasoline components - accounted for 10% of the nation's supply in 2004.

Although hurricane Ivan in 2004 wasn't as damaging as Katrina in 2005, Ivan did cause both crude production and gasoline refinery shutdowns.

 
At 5/30/2012 12:37 PM, Blogger NormanB said...

The Sheiks are s------- in their robes.

 
At 5/30/2012 2:04 PM, Blogger Buddy R Pacifico said...

Norman B,

shaking, shiftting, seething, seceding, scuffling, scrambling, screaming, scorning, scattering, sinking, slipping, skimping, or sneering?

 
At 5/30/2012 2:58 PM, Blogger Ron H. said...

sulking

 
At 5/30/2012 3:01 PM, Blogger Jon Murphy said...

sunbathing?

 
At 5/30/2012 3:49 PM, Blogger Ron H. said...

No, No, "spitting"

 
At 5/31/2012 1:08 PM, OpenID roycobden said...

I suppose it's still far too early (& far too much to hope for) for the US to start to extricate itself from the Middle Eastern mess it seems to so enjoy meddling in.

 

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