Oil prices soar in spite of sharp increase in U.S. production under Obama
- Jul 6, 2018 9:55 pm GMT
US oil production last year rose to its highest level in almost a decade….
As a result, analysts believe the US was the largest contributor to the increase in global oil supplies last year over 2009, and is on track to increase domestic production by 25 per cent by the second half of the decade.
Domestic oil production is soaring, but so are global prices. It should be obvious that yet more drilling can’t have any significant impact on oil prices — particularly since the U.S. Energy Information Administration has been making that precise point for years now (see EIA: Full offshore drilling will not lower gasoline prices at all in 2020 and only 3 cents in 2030!).
The only thing that can protect Americans from the inevitably increasing oil shocks of Peak Oil is an aggressive strategy to reduce the country’s oil intensity (oil/GDP), including a steady increase the fuel efficiency of our vehicles — policies that conservatives have fought for decades.
The revival of US production has been made possible by a rush of small and mid-sized companies into onshore regions such as the Bakken shale in North Dakota, the Permian Basin in west Texas and the Eagle Ford shale in south Texas.
North Dakota’s production has doubled since 2008, reaching 355,000 b/d in November. Extraction of oil reserves in these regions was thought to be uneconomic, but has been made commercially viable by the transfer of techniques successfully used to extract shale gas; in particular, long horizontal wells and “fracking”, pumping water under high pressure to crack the rock and enable the oil to flow.
Dave Hager, vice-president for exploration and production at Devon Energy, one of the companies pioneering the development of the new onshore fields, said new technology had transformed production economics at its mixed gas and oilfields in north Texas.
Like it or not, Obama actually campaigned on opening up oil production in the Bakken shale, so he is delivering on a campaign promise there.
Of course, more domestic production simply can’t have any significant impact on global prices, as the US Energy Information Administration has made clear many times (see here).
The EIA’s 2009 report, “Impact of Limitations on Access to Oil and Natural Gas Resources in the Federal Outer Continental Shelf” analyzed the difference between full offshore drilling (Reference Case) and restriction to offshore drilling (OCS limited case). In 2020, there is no impact on gasoline prices (right hand column). In 2030, US gasoline prices would be three cents a gallon lower. Woohoo!
I have previously written about the trivial impact of opening the OCS further to drilling — The oil companies already have access to some 30 billion barrels of offshore oil they have barely begun to develop (see “The cruel offshore-drilling hoax“).
If you are concerned about the impact of high oil prices from Middle East instability, the only viable long-term strategy is one aimed at ending our addiction to this climate-destroying fossil fuel. Even the once-staid and conservative International Energy Agency understands that (see World’s top energy economist warns peak oil threatens recovery, urges immediate action: “We have to leave oil before oil leaves us”). And Obama has taken aggressive action in this area, raising new car fuel efficiency standard to 35.5 mpg by 2016, the biggest step the U.S. government has ever proposed to cut oil use.
So why are Barbour and the conservatives shilling for Big Oil? TP explains:
There is a notable theme here — aside from crass political point scoring, these attacks are calibrated to protect oil as a primary energy source at the expense of cheaper green alternatives, while pushing for even more oil drilling here in the United States. These opportunistic attacks come as the oil industry prepares to pump unprecedented sums of money into the political process. Since the midterm elections, the oil industry has “been very aggressive right out of the gate because of the huge opportunity with the election of their allies,” as Daniel J. Weiss, the director of climate strategy at the Center for American Progress Action Fund, told the Houston Chronicle yesterday. Oil and gas companies spent $146.3 million on lobbying last year, and that number is poised to rise as the presidential election approaches. For example, the American Petroleum Institute will start donating money to political campaigns this year.
… the big five oil companies — BP, Chevron, ConocoPhillips, ExxonMobil, and Shell — made $893 billion in profits from 2001 to 2010.
It’s a ‘virtuous’ cycle. Big Oil gets politicians elected who push for more drilling and try to block strategies that could actually reduce our oil addiction. Oil profits keep going up — and that means more money for Big Oil to invest in those politicians.
Note: For the EIA data in the top figure, go here.
Get Published - Build a Following
The Energy Central Power Industry Network is based on one core idea - power industry professionals helping each other and advancing the industry by sharing and learning from each other.
If you have an experience or insight to share or have learned something from a conference or seminar, your peers and colleagues on Energy Central want to hear about it. It's also easy to share a link to an article you've liked or an industry resource that you think would be helpful.