The resurgence of U.S. oil and gas production

Source: New York Times

Last year, for the first time since 1949, the United States became a net exporter of liquid fuels — gasoline, kerosine, aviation fuel and diesel fuel— meaning that we now export more of these products than we import.  During the past few years, refined petroleum products have become the most valuable U.S. export.

In 1949, the United States exported 86 million barrels of liquid fuels and imported only 82 million barrels.  From 1950 through 2010, we imported more than we exported.  But for the first 11 months of 2011, we exported 848 million barrels of liquid fuels and imported only 750 million barrels.

We still are a net importer of crude oil, but that situation also is improving.  The United States now gets only 45 percent of its crude oil from imports, down from 60 percent about three-and-a-half years ago, thanks to increased U.S. production in the past few years.   Natural gas, which was in short supply a few years ago, is now in surplus.  As the New York Times reported:

Across the country, the oil and gas industry is vastly increasing production, reversing two decades of decline. Using new technology and spurred by rising oil prices since the mid-2000s, the industry is extracting millions of barrels more a week, from the deepest waters of the Gulf of Mexico to the prairies of North Dakota.

At the same time, Americans are pumping significantly less gasoline.  While that is partly a result of the recession and higher gasoline prices, people are also driving fewer miles and replacing older cars with more fuel-efficient vehicles at a greater clip, federal data show. … …

Not only has the United States reduced oil imports from members of the Organization of the Petroleum Exporting Countries by more than 20 percent in the last three years, it has become a net exporter of refined petroleum products like gasoline for the first time since the Truman presidency.  The natural gas industry, which less than a decade ago feared running out of domestic gas, is suddenly dealing with a glut so vast that import facilities are applying for licenses to export gas to Europe and Asia.

National oil production, which declined steadily to 4.95 million barrels a day in 2008 from 9.6 million in 1970, has risen over the last four years to nearly 5.7 million barrels a day. The Energy Department projects that daily output could reach nearly seven million barrels by 2020. Some experts think it could eventually hit 10 million barrels — which would put the United States in the same league as Saudi Arabia.


If everything is going so well, why is gasoline above $4 a gallon and rising?  It is because the price of petroleum products is set in a world market, which Americans do not control.  The world market includes China, which now puts more cars on the road each year than the United States.  In fact, rising prices were a factor in the U.S. export success.   That is the free market in operation.  As the price of gasoline increases, we have an incentive both to use less and to produce more.

This turn toward energy independence happened during the Obama administration, but there is a certain paradox here.  President Obama ran on a promise to work to replace fossil fuels with renewable energy, and to limit energy consumption by means of a cap-and-trade scheme.  While these efforts may someday bear fruit, the current turnaround is based on fossil fuels.

As the New York Times article noted, President Obama has largely continued the policies of the George W. Bush administration—tax breaks for oil and gas companies, opening up federal lands for energy production and loose regulation of controversial practices such as hydraulic fracturing for oil and gas.  But the President is being attacked, and defended, as if he were the environmentalist he claimed to be.

The problem with all this is that the faster we burn through our oil and gas resources, the less there will be in the future.  If it were up to me, I would go slow.  Maybe, in time, there will be alternatives to destructive and risky processes such as deep water ocean drilling and hydraulic fracturing.  The oil and gas isn’t going to go away if we don’t use it right away.

Click on Inching Toward Energy Independence in America for the New York Times report.

Click on Gas, other fuels are top U.S. export for an Associated Press report.

One reason for the improved U.S. position is that young Americans are driving less than their parents, and walking, bicycling and taking the bus more—all of which lessens the need for gasoline.  Demographer Richard Florida noted in the Atlantic Monthly that young adults are less able to afford the estimated $8,700 a year cost of owning an automobile, they no longer see getting a driver’s license as a rite of passage and they have less need to get out and about because of their use of electronic social media.

Click on Why Young Americans Are Driving So Much Less Than Their Parents for Richard Florida’s article.

Jordan Weissmann, also writing in the Atlantic Monthly, said the U.S. export position was improved by new Environmental Protection Agency regulations reducing the sulfur content of diesel fuel.  These regulations made U.S.-refined diesel fuel compliant with European standards, and opened up that market to the United States.

Click on How did America became a net fuel exporter? Thank the EPA!  for Jordan Weissmann’s article.

Source: New York Times

This chart shows why increasing U.S. production of oil and liquid fuels won’t necessarily lower the price of gasoline at the pump.   Prices are set in a world market, and U.S. consumption is no longer the main driver of the world market.

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