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Crushing The U.S. Energy Export Dream

Crushing The U.S. Energy Export Dream

Exporting crude oil and natural gas from the United States are among the dumbest energy ideas of all time. 

Exporting gas is dumb.

Exporting oil is dumber.

The U.S. imports almost half of the crude oil that we use. We import 7.5 million barrels per day. The chart below shows the EIA prediction that production will slowly fall and imports will rise (AEO 2014) after 2016.

USProductionAndNetImportsOfCrudeOil

This means that the U.S. will never be self-sufficient in oil. Not even close.

What about the tight oil that is produced from shale? That's included in the chart and is the whole reason that U.S. production has been growing. But there's not enough of it to keep production growing for long.

Related: Oil Export Ban Slowly Eroding

Here is a chart showing the proven tight oil reserves just published last month by the EIA.

USProvenReservesOfTightOil

Total tight oil reserves are 10 billion barrels (including condensate). The U.S. consumes about 5.5 billion barrels per year, so that's less than 2 years of supply. Almost all of it is from two plays--the Bakken and Eagle Ford shales. We hear a lot of hype from companies and analysts about the Permian basin but its reserves are only 7% of the Bakken and 8% of the Eagle Ford.

Tight oil comprises about one-third of total U.S. crude oil and condensate reserves. The U.S. is only the 11th largest holder of crude oil reserves (33.4 billion barrels) in the world with only 19% of Canada's reserves and 12% of Saudi Arabia's reserves.

ProvenOilReserves

In other words, the U.S. is a fairly minor player among the family of major oil-producing nations. For all the fanfare about the U.S. surpassing Saudi Arabia in production of crude oil, we are not even players in reserves. What that means is that we may temporarily pass Saudi Arabia in production because it chooses to restrict full capacity, and U.S. production will fade decades before Saudi Arabia's production begins to decline.

Related: US Sees Huge Energy Opportunity In Europe

Let's put all of this together.

• The U.S. will never be oil self-sufficient and will never import less than about 6 million barrels of oil per day.
• U.S. total production will peak in a few years and imports will increase.
• The U.S. is a relatively minor reserve holder in the world.

How does this picture fit with calls for the U.S. to become an exporter of oil? Very badly. For tight oil producers to become the swing producers of the world? Give me a break.

Perhaps we should send congressional proponents of oil export like Joe Barton (R-TX), Ted Cruz (R-TX) and Lisa Murkowski (R-AK) to "The Shark Tank" TV show to try to sell their great idea to the investors and judges.

I'm out.

By Arthur E. Berman for Oilprice.com

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  • Eliot on January 20 2015 said:
    How far the assumption that import streams can be replaced by domestic production is true? Crude quality is an important factor!
  • Gnom on January 20 2015 said:
    USA has fivefold oil reserves compared to Saudi Arabia, we just need a president who will be willing to tell this truth officially.
  • zipsprite on January 20 2015 said:
    Thank you sir, for printing the facts, which no one else seems inclined to do in the midst of the ridiculous irrational exuberance over US oil production. We deceive ourselves at our own peril.
  • Don Campbell on January 20 2015 said:
    You logic is based on limited knowledge. The reason for export is profits only. Much of the rest of the world pays $12-$15 per gallon for auto fuel and over $10 for natural gas per unit vs USA at $3-$4 per unit. If US corporations could make more profit then they will drill more and provide more jobs to grow economy.

    In your comparison you did not allow comparison for heavy crude countries reserves. These do not compare to our light crude. It is difficult to find someone who even wants to refine heavy crude right now. This means that they may have paper reserves but what is it worth no one will refine it?

    We have much more crude reserves than you listed. Some say we are on the decline in petro usage but that does not say the rest of the world is not increasing usage. It is time we expand our global markets and increase our profits and expand not only our reserves but our refinery capacity and this will never happen with out increasing profits through exports.

    .
  • Re: Gnom, Don Campbell on January 20 2015 said:
    Gnom
    "fivefold"
    Only if you mine it out. Considering the recovery ratio of Horizontal Drilling + Hydraulic Fracturing is 3%-5%, its a long way to 1-2 trillion barrels equivalent. Its more like ~25 billion barrels oil equivalent recoverable. Even then there is "economically recoverable" reserves. As oil prices fall below $50/bbl, the drilling and production prospects dim. Below $40/bbl, its very unprofitable to drill and produce tight oil."fivefold"

    Much the organic material in the Green River Basin isn't oil or LPG. Much of it is actually kerogen, that needs pressure cooking to turn into oil. All this means you need lots of labor, technology, equipment, plant and energy to turn tightly bound organic material into something you could feed into an oil refinery. All this requires sustained $60-$100 bbl oil to build out.

    From the 35+ year of effort, the R&D results aren't good. Big Oil hasn't been willing to go all in on the Green River Basin because the long term production costs per barrel are way above the ~$25/barrel (FY2010) long term oil price.

    Don Campbell
    Export
    Yes, the export push are an attempt at arbitrage. However, the higher motor fuel prices overseas are largely due to local and national taxes. These taxes finance transportation infrastructure and health costs related to moving goods and people around. Strip that away, and you see the pretax cost per gallon is comparable. After including shipping costs, the rationale for arbitrage disappears.

    Europe and East Asia have their LNG and pipeline gas contracts pegged to oil prices. When oil was $80-$100/bbl, it produced a massive differential between the Natural gas costs in US and Natural gas costs in Japan and EU. That has shrunk as oil has retreated. The opportunity to make gobs of cash via trans Atlantic Nat gas arbitrage is disappearing. Trans Pacific arbitrage is still there, but the pipeline infrastructure isn't there, and the Canadians may get there first. Additionally, Russia is pushing into East Asia with relatively cheap pipeline gas, and Japan is slowly restarting their nuclear power plants. This bodes ill for LNG futures in East Asia, as the surge in LNG demand after Fukushima disaster abates.

    The WTI-Brent arbitrage window is also closing, due to rail and barge tanker build out. Add in the drop $50 drop in oil, and tight oil production will shrink too.

    Over the past 20 years, oil refiners have spent hundreds of billions of dollars to convert their plants to take sour heavy crude. The conventional wisdom was the sweet light stuff was maxed out, and new capacity was likely to be stuff that needed different equipment to turn into refined product. Fast forward to early 2010's and the surge in US tight oil production. This wasn't expected, and will require adjustments, and new capacity to use as refiner feedstock. Some of the adjustments under way are in the form of light crude import reduction, and blending light sweet crude with heavy crude instead of importing medium grade crude. This allows more use of heavy grades of domestic and Canadian crude.
  • baldski on January 20 2015 said:
    Mr. Berman left out the fact that we export over 4 million bbl/day of petroleum products, so imports could effectively be shrunk by that amount.
  • Ron on January 20 2015 said:
    I would like to see the country use its own energy products and get out of OPEC. People don't think about how much we pay for the military in the middle east and how much that makes our oil really cost. The joy about what is happening now with oil,shows the lack of thinking about what the long term effects will be. Typical,and why our country has so many problems that go on and on.
  • Lynden on January 20 2015 said:
    Ron, my question is. Would we reduce our military spending? Maybe we are addicted to our current position psychologically. Or maybe we are helping to prop up our trading partners by making sure KSA oil continues to flow.
  • Engineer-Poet on January 22 2015 said:
    As Robert Rapier noted quite some years ago, if the USA had the same per-capita petroleum consumption as Brazil it would be a net exporter today. The three essential uses for oil are aviation fuel, asphalt for roads and chemical feedstock. The first one is the only major player, and it's a fairly small fraction of total consumption. Electrifying ground transport would eliminate half of US oil consumption right there.

    That deals with "could". Should the US export oil? Hell, no.

    "Mr. Berman left out the fact that we export over 4 million bbl/day of petroleum products, so imports could effectively be shrunk by that amount."

    That supposes that the feedstock fractions for the products being exported could be turned into products in demand in the USA.

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