by Richard Heinberg
Congress is holding hearings this week on the possible lifting of a US oil export ban instituted in the 1970s to promote national energy self-sufficiency and has invited a number of “experts” with dubious ties to the oil and gas industry to explain to them why it’s such a good idea. Following Russia’s near-annexation of Crimea, American politicians are intent on undercutting Russian president Vladimir Putin’s greatest geopolitical
asset—his country’s oil and natural gas exports. If the US could supply Europe with large amounts of fuel, that would reduce the Continent’s dependency on Russia while depriving Putin of needed revenues.
Lawmakers from both parties are also using the hearings to urge the
Obama administration to speed up natural gas exports as a hedge against
the threat of a conceivable Russian cutoff of gas supplies to Ukraine
and other countries. Four Central European nations—Hungary, Poland,
Slovakia and the Czech Republic—have already made formal requests for US
exports.
There’s just one tiny problem with all these fervent desires and
good intentions. On a net basis, the US has no oil or gas to export.
Sure, our nation produces a lot of these fuels, and the amounts
have been growing in recent years. But the United States remains a net
importer of both oil and natural gas. Let me repeat and emphasize that: the United States remains a net importer of both oil and natural gas.
In 2013, the US produced about 7.5 million barrels of crude oil per
day, but imported just about as much. While the nation’s rate of
domestic production is currently surging, it will likely top out at
about 1.5 mb/d above current rates and then start to decline. The likely
speed of the decline is a matter of some controversy: the Energy
Information Administration forecasts a long plateau and slow taper,
while our in-house analysis at Post Carbon Institute indicates a sharper drop-off. Either way, it is extremely unlikely that America will ever again be a net exporter of oil.
Last year the United States produced 24.28 trillion cubic feet of
natural gas, an all-time record amount. However, we still imported 2.5
tcf of gas (11 percent of total consumption). The trend in US gas
production rates has leveled off and (a anccording to our in-housealysis)
is likely to begin declining in just the next few years, just about the
time new liquefied natural gas (LNG) export terminals will be ready for
business.
To be sure, extraordinary claims have been made for America’s oil
and gas potential, now that the industry has unleashed fracking and
horizontal drilling technologies on shale formations in Texas, North
Dakota, Pennsylvania, and elsewhere. But, as I argued in my book Snake Oil: How Fracking’s False Promise of Plenty Imperils Our Future, those
claims are wildly overblown. A far more accurate assessment of the
industry’s prospects comes from its own premiere publication, Oil & Gas Journal, whichreports asset write-downs approaching $35 billion among 15 of the main shale operators.
The Journal cites “. . . recent analysis by Energy Aspects, a commodity research consultancy, showing 6 years of progressively worsening financial performance by 35 independent companies focused on shale gas and tight oil plays in the US.” This worsening financial performance comes despite production growth and a general shift of drilling activity away from dry gas and toward higher-profit liquids (crude and NGLs) since 2010.
The Journal cites “. . . recent analysis by Energy Aspects, a commodity research consultancy, showing 6 years of progressively worsening financial performance by 35 independent companies focused on shale gas and tight oil plays in the US.” This worsening financial performance comes despite production growth and a general shift of drilling activity away from dry gas and toward higher-profit liquids (crude and NGLs) since 2010.
Oil & Gas Journal cites analysis by Ivan Sandrea, an OIES research
associate and senior partner of Ernst & Young London, suggesting
that, “Unless financial performances improve, capital markets won’t
support the continuous drilling needed to sustain production from
unconventional resource plays.” Sandrea forecasts that “Parts of the
industry will have to restructure and focus more rapidly on the most
commercially sustainable areas of the plays, perhaps about 40% of the
current acreage and resource estimates. . . .”
So, just what are we supposed to export?
In fact, talk of oil and gas exports is being driven not by excess
production capacity or geopolitical acumen, but rather by old-fashioned
profit seeking. The US oil industry currently is frustrated by a
mismatch between the petroleum grades increasingly being produced
domestically (light crude from the Bakken and Eagle Ford plays) and the
grades our refineries are tweaked to accept (heavier grades of crude,
for example those from Canada’s tar sands). A lifting of legal
constraints on exporting US oil would help refiners and producers sort
out this temporary mismatch.
Meanwhile the American natural gas industry is suffering under low
domestic gas prices, a problem for which the industry has only itself to
blame. During the last few years, shale gas companies over-produced in
order to upgrade the value of their assets (millions of acres of
drilling leases), thereby driving prices down below actual costs of
production. If some US natural gas could be exported via LNG terminals
now under construction, that would tend to raise domestic prices.
However, this would also undercut promises of continuing low prices that
the industry has repeatedly made—promises that have lured the chemicals
industry to rebuild domestic production facilities and that have
enticed electric utilities to switch from burning coal to natural
gas—but hey, those were just words.
This is what all the oil and gas export fuss is really about. As
for the notion of making Vladimir Putin quake in his boots in fear of a
tsunami of American crude and natural gas—forget it. Putin is indeed
probably quaking right now, from laughter.
Perhaps America should instead consider exporting stupidity. It’s a commodity we seem to have in surplus. resilience.org
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