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Dave Cohen

Dave Cohen

Dave Cohen writes the blog Decline Of The Empire. His commentaries cover a wide variety of subjects, including the American economy & macro-economics, the oil…

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Why the US is NOT the New Saudi Arabia

Here we go again, another ‘Planet Stupid’ update. All posts like this one have a predictable structure. Some egregious baloney is put out by a propaganda organization like Reuters, the Associated Press, CBS, NPR, etc. Well this load demands a refutation, which I supply. What's different today is that I will let Brad Plumer of the Wonk Blog do the debunking.

Here's the B.S., from the AP. The author is one Jonathan Fahey, who one presumes is a member in good standing of our species Homo sapiens, also known as Homo laeviculus.

NEW YORK (AP) — U.S. oil output is surging so fast that the United States could soon overtake Saudi Arabia as the world's biggest producer.

Driven by high prices and new drilling methods, U.S. production of crude and other liquid hydrocarbons is on track to rise 7 percent this year to an average of 10.9 million barrels per day. This will be the fourth straight year of crude increases and the biggest single-year gain since 1951.

The boom has surprised even the experts.

Experts?

"Five years ago, if I or anyone had predicted today's production growth, people would have thought we were crazy," says Jim Burkhard, head of oil markets research at IHS CERA, an energy consulting firm.

Ah! The Usual Suspects. And the "experts" at Citigroup also get a mention.

The Energy Department forecasts that U.S. production of crude and other liquid hydrocarbons, which includes biofuels, will average 11.4 million barrels per day next year. That would be a record for the U.S. and just below Saudi Arabia's output of 11.6 million barrels. Citibank forecasts U.S. production could reach 13 million to 15 million barrels per day by 2020, helping to make North America "the new Middle East."

There's more, but why bother to repeat it? Here's how the bullshit (audio) was reported by the amateurish but enthusiastic propagandists at NPR. Bold italics indicate emphasis in the reporter's voice.

NPR's business news begins with an American oil boom. [happy theme music - duh, da duh duhda, da duh duh da...]

The United States could soon overtake Saudi Arabia as the world's biggest oil producer. The Associated Press reports new drilling methods have boosted U.S. oil production 7% this year alone.

And next year, the energy department sees American output falling just shy of Saudi Arabia's 11.6 million barrels per day. Industry analysts predict that by 2020 North America could be the New Middle East.

Do you see how the propaganda works? I assume you do, it couldn't be any more obvious.

OK, here's Brad Plumer's The U.S. isn’t quite ready to catch up with Saudi Arabia on oil

Here’s an eye-catching lead from the AP’s Jonathan Fahey: “U.S. oil output is surging so fast that the United States could soon overtake Saudi Arabia as the world’s biggest producer.”

It’s a great story, but it could use a bit of dissecting. There’s no question that U.S. oil output has surged in recent years. But we’re not quite ready to catch up with Saudi Arabia just yet. There’s a tiny asterisk in here that warrants a fuller explanation.

Related Article: Can Russia Afford to Cut Itself off from Western Oil Companies?

First, here’s a chart (pdf) from the Energy Information Administration looking at crude oil production around the world. Notice that United States is still far below Saudi Arabia:

Crude Oil Production for Country

U.S. crude oil production has increased dramatically in the past year, thanks to a drilling boom in places like North Dakota. That’s helped the U.S. reduce its imports. But we’re not likely to catch up to Saudi Arabia anytime soon. What’s more, Saudi crude is generally cheaper and easier to produce than America’s “unconventional” oil from shale rock. That gives the Saudis enormous sway over oil markets.

So what is the AP referring to? The trick is to look at what the EIA calls “total oil supply.” This isn’t just crude oil. It also includes natural gas liquids, biofuels, and the processing gains from refineries. On this score, yes, the United States is catching up with Saudi Arabia. Here’s a chart from James Hamilton:

Total US Oil Production Components
Components of total U.S. oil supply, monthly, January 2000 to March 2012, in millions of barrels per day. Blue: crude oil including lease condensates; purple: refinery processing gain; brick: natural gas plant liquids; yellow: other liquids, including corn ethanol. Data source: EIA.

The EIA forecasts that the United States will produce an average of 11.4 million barrels per day of “crude oil and other hydrocarbons” next year. That’s compared with 11.6 million barrels per day of “crude oil and other hydrocarbons” from Saudi Arabia.

Related Article: Pipeline Companies Leak Detection System Only Detects 1 out of 20 Oil Spills

So which metric should we care about? Some energy experts, like Chris Nelder, argue that we should mainly focus on crude oil, since that’s by far the most important energy source for powering the global economy. Most of our cars still run on gasoline. And gasoline depends on crude oil.

Natural gas liquids, by contrast, largely consist of propane and ethane. Those are quite useful for the petrochemical industry and for home heating. But we can’t really fuel our cars with natural gas liquids. They don’t have nearly the same importance as crude oil in that regard. (Technically, we could run our cars on propane, but the infrastructure isn’t in place.) Biofuels, meanwhile, are useful but fairly energy-intensive to produce. They don’t pack nearly the same punch as oil.

The "trick" which gives legs to the propaganda is to use what oil analysts call the "all liquids" tally (Hamilton's chart above). But if you look at crude oil alone, which gives us gasoline, diesel, jet fuel and other products when refined, you see that production is just nosing up above 6 million barrels-per-day (the EIA chart above). And to put that in historical context, I'll throw in the long EIA graph which I used in Where Is American Oil Production Going? (January 26, 2012).

US Crude Oil Production
Source. October, 2011 crude oil production (average) was 5.784 million barrels per day (b/d).

If you're going to use all liquids, why not throw in cooking grease? Some enterprising Americans have gotten their vehicles to run on it, and to make that unsavoury fact more palatable, they call it biodiesel. I'll bet the United States generates way more cooking grease every day than Saudi Arabia does.

At the end of the day, the United States is indeed the world's leading producer of an important commodity, a commodity which is highly valued here in the Land of the Free and the Home of the Brave. On a daily basis, by any measure you care to use, the United States produces more bullshit than any other nation on Earth. Way more. It's no contest. No other nation even comes close.

Makes you proud, doesn't it?

By. Dave Cohen




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Leave a comment
  • Worle on October 28 2012 said:
    Dave,
    You made my day!!! Excellent analysis. You need to have your own BLOGCOMEDY where one can subscribe and pay to read fact-based, interesting and totally non-BS analysis like this.

    Worle

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