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Page added on June 2, 2015
Why US oil will never go it alone
Let me keep this simple. American energy independence is an enormous red herring, no matter how much the U.S. shale hawks and politicians want it to be true.
I can already hear the air over the other side of the Atlantic turning blue as I sit in my airplane seat at 33,000 feet on the way to the OPEC meeting in Vienna. But just bear with me for a moment.
What the U.S. shale industry has done in such a short period of time is stunning. Technologically, it is an extraordinary feat; the world of hydrocarbon energy production has been revolutionized. No-one talks about Peak Oil in any meaningful way anymore. No-one questions that shale has added billions of barrels and decades possibly to “in-the-ground U.S. reserves.” In fact if green technologies had done the same feat, then oil would already be history.
But there is the point. It has added this enormous supply and capacity to “in-the-ground U.S. reserves.” Not European, not Chinese, not Japanese and not Indian reserves. Yes, in the narrow measure of U.S. supply for U.S. customers, we are getting much closer to an equilibrium that even a decade ago would have been laughed out of Houston but the rest of the world hasn’t done this and is still very much reliant on Saudi, Iranian and Russian oil and gas.
Am I being pedantic? Am I missing the point? I don’t think so. No matter how hard the U.S. tries to insulate itself from the rest of the world, sometimes we all know this is a futile exercise. If the rest of the world suffers, or for that matter prospers, the U.S. is intricately linked.
The evidence is everywhere, from the enormous holdings of U.S. treasuries held by China and Japan to Ukraine. European and global factors will always matter to the U.S. and its economic and market performance.
The most startling piece of evidence for this view point comes from the Greece saga. Last week I was in Dresden and speaking to U.S. Treasury Secretary Jack Lew. Once again he, quite rightly, was warning of the potentially catastrophic global consequences from Greece not getting a debt deal. And yes he meant for the U.S. as well.
Now if a tiny country, a minuscule little economy, like Greece can still be dominating U.S. international media headlines after all this time, what do you think oil disruptions outside of the U.S. can do in the coming years? Think about it, how many times have you clicked on to CNBC over the last five years and read the headline “U.S. stocks sell off on the back of Greek fears”? I’d wager dozens, maybe hundreds.
If the U.S. didn’t borrow trillions of dollars from international investors, if the U.S. didn’t trade billions of dollars worth of goods with the rest of the world, importing vast quantities of them from countries who DO rely on Middle Eastern and Russian oil and gas then, yes, independence from global oil supply and demand would be entirely possible. Like it or not, you cannot just put up the shutters and say the rest of the world does not matter if we have our own oil.
So in the narrowest sense. Yes the U.S. may just about in the next five years get to a situation where it can supply – albeit with the help of Canada — the oil it consumes but it will never be independent of global oil dynamics. Not until the rest of the world can turn its back on the current energy suppliers.
Despite all the stunning technological achievements we have seen from Texas to Dakota — first making shale viable and then responding this year to Saudi’s challenge by aggressively lowering the price per barrel – West Texas Intermediate is still closely aligned to global benchmarks such as Brent and will be closely correlated for the foreseeable future.
Like it or not OPEC, Russia and the rest of the non-North American oil producers will always matter in aggregate to the U.S. regardless of the mighty shale revolution.
16 Comments on "Why US oil will never go it alone"
Plantagenet on Tue, 2nd Jun 2015 3:13 pm
Yes, the US is part of the world, the US economy is influenced by the world, and the US oil price is influenced by OPEC and Russia.
Isn’t all that obvious?
rockman on Tue, 2nd Jun 2015 3:24 pm
“Yes the U.S. may just about in the next five years get to a situation where it can supply – albeit with the help of Canada – the oil it consumes…” The obvious of course: if the US is importing a significant amount of oil from Canada it isn’t supplying itself. Imported oil is imported oil regardless of where it originates. It represents US capital leaving the country.
“Despite all the stunning technological achievements we have seen from Texas to Dakota — first making shale viable…” No, the technology didn’t…high prices oil did. And we can stop arguing that point: with the rig count falling in half we’ll see the proof one way or the other in the next 6 to 12 months if low oil prices persist.
Cathy M on Tue, 2nd Jun 2015 3:39 pm
“No-one talks about Peak Oil in any meaningful way anymore.”
He only thinks that because he has his fingers in his ears, going, “La, la,la, la… I can’t HEAR you!”
joe on Tue, 2nd Jun 2015 5:41 pm
As we appear to be abandoning coal for fraked gas, oil as a transportation fuel may also be abandoned, that is unless opec pumps even more oil, forever. Ok, let’s say we all drive l.n.g cars in the near future. So what? Ok think about it, all electricity and transportation dirived from fracked gas and shale oil, great, right? Very cheap energy for generations, no need to bother with a nuclear Iran or a resurgent Russia, or a middle east poised to be reborn in a new Caliphate with Europe likely to be it’s main target. Godfather 3, ‘as soon as I think I’m out, they pull me back in’. Without a steady customer and powerful protector, the ME is going to go totally bananas, good luck with cheap energy independent security then. As for peak oil as in the point at which we pull half of the total recoverable oil from the ground cause future diminishing supplies. It’s right on track sadly, it’s physics.
Davy on Tue, 2nd Jun 2015 8:03 pm
Joe, we will never see an appreciable change over from oil driven cars to anything. Oil is the end game of the car culture. It is all downhill now and likely back to animal transport with some steam rail and ships, and some sale ships. There will be a hybrid period when fossil fuels are probably used for high value transport activity. The age of discretionary driving, flying, and boating with oil based fuels is drawing to a close.
There is no money and no time to switch over. This is just a desperation of the mind of the BAUtopians. BAUtopians must have a BAU plan B. What sounds better than a new fuel source, with new infrastructure, and new rolling stock? In reality the amount of scaling up of any other fuel or combination of other fuel systems is out of the question except in BAUtopian fantasies.
Makati1 on Tue, 2nd Jun 2015 8:13 pm
American oil ‘independence’ will only happen when the level of consumption falls below the level of profitable recovery in North America. The Canadian tar sands will die under the cost factor soon. Ditto for fraking. Ditto for off shore dreams in the Arctic. The US is one economic shock away from the 3rd world and it is coming over the horizon. Are you prepared?
Davy on Tue, 2nd Jun 2015 8:36 pm
Makster are you prepared for famine in the Philippines? Famine is what is coming to the P’s when the economic shock you speak of does its global contagion and wreaks havoc on an Asia. Asia is in massive overshoot to carrying capacity without significant food and fuel imports. When the rest of the global nations have no money for Asian plastic junk then Asia will not get their food and fuel. Unfortunate situation but that is life when you can’t control your reproductive urges and destroy your beautiful land to produce Barbie dolls for export. That in a nutshell is Asia.
clueless on Wed, 3rd Jun 2015 4:58 am
Davy delusional. USA will suffer the most because karma gets very deep into the system of the perpetrator. Remember that…and btw, east asia is a cluster of tropical countries which are heavily vegetative. Whereas, US is a toxic landlocked with poisoned soil and water. Now do the math.
rockman on Wed, 3rd Jun 2015 6:31 am
“Whereas, US is a toxic landlocked with poisoned soil and water. Now do the math.” OK here’s the math: with regards to total grain (corn, wheat and rice) exports the US is the #1 exporter on the planet feeding the world with 25$ more then the #2 exporter, Argentina.
“clueless”…how appropriate. LOL.
Davy on Wed, 3rd Jun 2015 6:54 am
Clueless, I thought you were gone. I was glad to hear when you said you went back south of the boarder because you could not stand the US. I was glad to know another ungrateful migrant is gone and not sucking off the system. We have enough problems with that.
mark on Wed, 3rd Jun 2015 7:21 am
The entire US. shale endowment is only 2-3 years worth of supply at current US consumption rates.
Natural gas is not going to replace gasoline/diesel fuel as a transportation fuel due to a much lower energy density. LNG has about 2/3 the heat energy of diesel fuel.
shortonoil on Wed, 3rd Jun 2015 8:19 am
“It has added this enormous supply and capacity to “in-the-ground U.S. reserves.”
“The delusion of the barrel.” The number of barrels in the ground is irrelevant. Belief in their importance is equivalent to a modern day mythology. It is the slight of hand that has been used by the industry for a 100 years. In reality most barrels in the ground are worthless to modern society. They will stay exactly where they are; in the ground!
Like the mythology of barrels in the ground, American energy independence is another mythology. It is based on the first one. Shale has not advanced American energy independence. When it becomes necessary to invest energy to get the same amount back there is no advancement toward energy independence. You have used a barrel to produce a barrel which does not give you more energy; just some barrels.
This slight of hand has been used to extract $trillions from investors; which is what the industry is interested in extracting. We go into great detail as to why a barrel may, or may not add energy. Stop by and see us; we will show you how to avoid the oily slight of hand.
http://www.thehillsgroup.org/
J on Wed, 3rd Jun 2015 12:34 pm
Hill, can you explain again why, if energy available to the society gets really small, why some billionaires won’t pay exuberant prices for said energy?
And as marginal oil consumers die, won’t price move up?
marmico on Wed, 3rd Jun 2015 1:08 pm
In reality most barrels in the ground are worthless to modern society
Must be the reason that the world economy yesterday, today and tomorrow will consume 79 million barrels per day of crude @ a refinery acquisition price of $52 USD/barrel/A> or $4.1 billion per day or $1.5 trillion per year. The numbers are understated in that foreign refineries pay more per barrel.
Hill is a buffoon. He wouldn’t know an order of magnitude if it him in the ass.
GregT on Wed, 3rd Jun 2015 1:22 pm
Maybe it’s the reason why economies are no longer growing Marmico.
“In reality most barrels in the ground are worthless to modern society”
In reality, unless most barrels of oil stay in the ground, not only will we not have modern society, we won’t have a planet capable of sustaining life as we know it.
Davy on Wed, 3rd Jun 2015 1:40 pm
Captain Marmi, ya back from the sea. Find your Moby Dickhead? Nope?, I thought so. That whale of a deal has still eluded you. Maybe you would be smarter to listen to Short. You could short the market (no pun) and make some serious “Jack”.
Captain you are smart enough to realize it takes money to make money. Why would the same not be true of oil? Dip Stick? Do you think oil just magically appears out of the ground per your idiotic Freddy fluff and econo 1010 supply/demand?