The U.S. Emerges as an Energy Superpower

February 6, 2018

No doubt you have heard the expression, “that which does not kill us makes us stronger.” That might be in essence the story of America’s oil and gas industry. Not surprisingly, Texas, where I live, has figured prominently in it.

 

From 2000 to 2008, the price of oil saw an unprecedented spike, going from under $25 per barrel to almost $150 per barrel. In response, U.S. drillers began in earnest to employ hydraulic fracturing, a technology pioneered by Mitchell Energy in the early 1980s near Fort Worth. In short, fracking -- blasting water and sand deep underground to free oil from shale rock -- gave the drillers access to once inaccessible shale gas reserves.

 

That development did not escape the attention of Saudi Arabia, which soon recognized this "fracking revolution" to be a potential threat to its hegemony around the world. Faced with the prospect of ceding market to these upstart American wildcatters, the Saudis convinced other OPEC nations to increase production, figuring that plentiful supply and lower oil prices would devastate the U.S. industry.

 

And it did. The price of oil dropped from over $100 a barrel in the summer of 2014 to $26 a barrel in February 2016. Most U.S. oil and gas producers were scratching and clawing just to survive, and many did not. More than 100, nearly half of them in Texas, went bust. The oil patch workforce in Texas dropped from 300,000 in December 2014 by 192,000 workers by September 2016.

 

Firing on All Cylinders

 

But late 2016, the Saudis came to the realization that these crazy Texans were in it for the long haul and would not go away. OPEC then decided to cut production and the price of oil rose to where it is today at about $65 a barrel.

 

Now that prices have stabilized, the Texas economy is “firing on all cylinders,” projected to add about 366,000 new jobs in 2018, according to Keith Phillips, senior economist for the Federal Reserve Bank of Dallas. 

 

(The gross domestic product of the state is $1.6 trillion. If it were an independent country, and it once was, it’s economy would rank 10th in the world. My apologies for the apparent bragging about Texas. As a New York Times writer noted, “You don’t just move to Texas, Texas moves into you.)

 

Doing More With Less

 

Texas oil production is projected to reach 1.42 billion barrels a day this year, beating the 1972 record of 1.26 billion barrels. But it is worth noting that oil companies will do that with 75,000 fewer workers than at the peak in 2014 when 300,000 worked in the industry in Texas. 

 

Efficiency is now the watchword. In short, the drilling companies have learned they can do more with fewer people. And that, too, has the world watching.

U.S. shale is “seemingly on steroids,” Amrita Sen, chief oil analyst at consultant Energy Aspects Ltd. in London, told Bloomberg. “The market remains enchanted by the ability of shale producers to adapt to lower prices and to continue to grow.”

 

And while the oil and gas industry remains a key economic driver in certain cities in Texas, Midland and Odessa would be examples, it represents less than 1 percent of the workforce in the Dallas-Fort Worth Metroplex. Statewide, it is less than 3 percent.

 

Explosive Growth

 

In his first state of the union speech last week, President Donald Trump, not surprisingly used the word “strong” to describe the state of the nation (all presidents do), all the while taking credit for an economy that appears to be doing very well.

 

Notwithstanding the Dow loss of 1,100 points last week in what most analysts says was a self-correcting response, the Labor Department on Friday reported that the economy added 200,000 new jobs in January, up from 160,000 in December.

 

Wages saw their biggest year-over-year increase since June 2009, rising by 2.9 percent over January 2017.

 

Other than saying, “we have ended the war on American energy,” Trump touched little on that subject. But prior to his speech, he has talked not only of energy independence for the U.S., but energy “dominance” in the world. There are indications that this might be actually happening.

 

U.S. oil production has surged above 10 million barrels a day for the first time since 1970, and the International Energy Agency says the U.S. is poised for "explosive" growth in oil output that will push it past Saudi Arabia and Russia this year.

 

Exports of crude oil and petroleum products have risen 20 percent in 2017 in the past few months to 7 million barrels per day. Natural gas production has also hit a record of more than 93 billion cubic feet per day.

 

“For the last 40 years, since the Arab oil embargo, we’ve had a mindset of energy scarcity,” said Jason Bordoff, founding director of the Center on Global Energy Policy at Columbia University and a former Obama administration official in an interview with Bloomberg. “As a result of the shale revolution, the U.S. has emerged as an energy superpower.”

 

That is also the assessment of Dr. Daniel Yergin, author of “The Prize: The Epic Quest for Oil, Money and Power.”

 

“This is a 180-degree turn for the United States and the impacts are being felt around the world,” Dr. Yergin told the New York Times. “This not only contributes to U.S. energy security but also contributes to world energy security by bringing new supplies to the world.”

 

Trump no doubt will claim credit for this relatively newfound superpower status, but the shale fracking revolution took place mostly during the Obama administration. The ban on crude exports from the U.S. was lifted in 2015, also when President Obama was in office.

 

Environmental Concerns

 

Much to the ire of many, the Trump administration supports opening 90 percent of the outer continental shelf to oil drilling as well as the Arctic National Wildlife Refuge where there is an estimated 11.8 billion barrels of recoverable crude.

 

Alarmed at the prospect that an offshore spill could devastate tourism in their respective states, governors of states along the Atlantic and Pacific coasts are seeking the same exemption that Florida Gov. Rick Scott (R) apparently got from the administration that would keep the offshore drilling ban in place.

 

Truth be told, there is not much planet sensitive about the current administration’s energy plans. Many environmentalists argue that shale drilling only extends the life of fossil fuels, much to the detriment of the planet. 

 

It should be noted that the last three years have been warmest in 138 years of record keeping, resulting in, what scientists point out, the decimation of coral reefs, thawed polar ice at an unprecedented rate and raised global sea levels.

 

“We’re warming up pretty much at the rate we anticipated a decade ago,” Gavin Schmidt, director of NASA’s Goddard Institute for Space Studies, told Bloomberg. “Basically, all of the warming of the past 60 years is attributable to human activities.”

 

Whether you agree with that assessment, held by most scientists, or not, the environment would appear to be a low priority with the Trump administration.

 

What Does This Mean?

 

So what does the shale revolution and America’s rise as an energy superpower mean to most of us? Lower energy costs, at least compared to much of the world, is likely one result, which can and should be a boon to certain industry sectors, particularly manufacturing.

 

Will there be a movement away from renewable sources of energy, such as solar or wind? Possibly, which would not be in the nation’s long-term best interests. But in the short-term, the economy is very much cooking with gas.

 

I’ll see you down the road.

 

 

 

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