Guest Post: Is The U.S. Oil Boom About To Bust?

Tyler Durden's picture




 

Submitted by Daniel J. Graber of OilPrice.com,

The United States is expected to lead the pack among non-OPEC members in terms of oil supply growth for 2013. That's the assessment from this month's market report from the Vienna-based cartel. OPEC said it projected U.S. oil supply growth of around 600,000 barrels per day in 2013, with most of that coming out of tight oil formations in the country.  For the U.S. Energy Department's Energy Information Administration, that means oil imports should fall to their lowest level since 1985. Republican leaders in the House of Representatives said more energy development is the key to a balanced budget, a sentiment enforced by EIA predictions of 7.9 million U.S. bpd by 2014. OPEC, however, said it may need to revise its figures because a possible slowdown in the U.S. oil boom.

House Budget Committee Chairman Paul Ryan, R-Wisc., unveiled a 91-page plan that he says would balance the budget in 10 years without raising taxes. The congressman said the Obama administration was over-subsidizing renewable energy programs to the detriment of the fossil fuels industry. With that policy, Ryan said the administration is standing in the way of the country's true energy potential.

"Our country has 163 billion barrels of recoverable oil and enough natural gas to meet the country’s demand for 90 years," his agenda states.

The EIA, in its latest report, said it estimates 2012 oil production averaged around 6.5 million barrels per day. The average for November and December, however, was 7 million bpd, the highest volume recorded in twenty years. By 2014, that level should reach 7.9 million bpd. For EIA Administrator Adam Sieminski, that means the United States is relying less on foreign markets to meet its energy needs. By next year, foreign imports should fall to 32 percent of consumption, putting the United States on the road to the energy independence envisioned by House Republicans.

OPEC finds that tight oil production, coupled with modest growth from the Gulf of Mexico, meant most of the supply growth from non-members would come from the United States. For Ryan, expanding that growth to potential on federal lands, now off-limits, could add another $14.4 trillion in cumulative economic activity during the next 30 years. House Natural Resources Committee Chairman Doc Hastings said that's reason enough to embrace fossil fuels over tax increases.

"(Ryan's budget) recognizes that expanded American energy production is one of the best ways to raise new revenue, bolster the economy, lower gasoline prices, and put Americans back to work at good-paying jobs," he said.

OPEC, in its forecast, said U.S. oil supply growth is projected at 600,000 bpd this year. That figure, however, is 40,000 bpd less than the previous year. The Vienna-based cartel said U.S. oil growth could go either way for 2013, but noted growth from tight oil developments in states like North Dakota is expected to slow down. While improved drilling technology may offset some of that decline, OPEC said that factors like price issues may dampen the oil boom in the United States. In 2009, the EIA found that opening more land could add another 500,000 bpd to the market, but once OPEC adjusts, the economic impact may be muted. OPEC is already adjusting, saying it expects the world will need about 29.7 million bpd of its oil in 2013, a decline from last year.

The White House said it believes Ryan is sincere in his effort to address ongoing budget issues. Apart from entitlement reforms and spending issues, however, its emphasis on domestic energy may be more of a platform issue. Though U.S. oil production is experiencing steady expansion, it's starting to slow down and with it potentially goes the revenue for which Ryan's plan depends.

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Thu, 03/14/2013 - 11:16 | 3329530 Dr. Richard Head
Dr. Richard Head's picture

Just like a Facebook stock tax winfall expected by California, the Federales will find their hopes and aspirations of more raping and pilaging to meet their dictatorial expenses fall flat. 

Thu, 03/14/2013 - 12:23 | 3329738 CrazyCooter
CrazyCooter's picture

Always remember, that new "tight" production is replacing declining conventional production.

http://www.oilposter.org/

And it is not nearly as cheap in terms of capital required to produce as the conventional stuff. These kinds of wells require constant re-drilling to keep production rates from collapsing.

Lots of liquidity these days, but one might ask, "what happens when money isn't free anymore?" Oil prices have to go up, permanently and in real dollars, to sustain the production. That is going to kill the economy (in real dollars).

Print some more oil Ben!

Regards,

Cooter

P.S. Here is some old "TV" for those who don't realize exactly how bad our energy outlook really is ...

http://www.abc.net.au/science/crude/

Thu, 03/14/2013 - 13:02 | 3329865 MSimon
Thu, 03/14/2013 - 11:16 | 3329533 Dr Paul Krugman
Dr Paul Krugman's picture

Oil prices are not sticky - they are transitory - because ever increases in technology will shrink input costs and raise output.

Thu, 03/14/2013 - 11:22 | 3329547 Dr. Engali
Dr. Engali's picture

The people betting on shale oil better hope prices are sticky. Good luck getting it out of the ground below $85.00 a barrel.

Thu, 03/14/2013 - 11:24 | 3329558 Dr Paul Krugman
Dr Paul Krugman's picture

Improvements in technology will change that.

Thu, 03/14/2013 - 11:28 | 3329572 Flakmeister
Flakmeister's picture

Any time you see "technology" in a puff piece on oil production replace it with "price" and it makes much more sense...

Thu, 03/14/2013 - 11:32 | 3329579 Dr Paul Krugman
Dr Paul Krugman's picture

You have no idea what you are writing about; economics dictates improvements in technology will reduce input costs and allow for greater output.

Thu, 03/14/2013 - 11:34 | 3329590 orangegeek
orangegeek's picture

Economics like Obama blocking Keystone?

Thu, 03/14/2013 - 11:40 | 3329611 Dr Paul Krugman
Dr Paul Krugman's picture

That's politics.

Thu, 03/14/2013 - 12:09 | 3329703 falak pema
falak pema's picture

if you say it twice that means PHd of economics is politics personified...read my lips is what they always say, again and again, and they never do what they say, just like the economists! 

Thu, 03/14/2013 - 11:40 | 3329612 Dr Paul Krugman
Dr Paul Krugman's picture

That's politics.

Thu, 03/14/2013 - 12:16 | 3329725 orangegeek
orangegeek's picture

You have an incredible grasp of the obvious.  That PhD you speak so highly of really does work. 

 

Thu, 03/14/2013 - 14:44 | 3330250 WillyGroper
WillyGroper's picture

Piled higher & deeper.

Thu, 03/14/2013 - 14:24 | 3330162 eclectic syncretist
eclectic syncretist's picture

Krugman, you brown-nosing liberal loving pussy.  Your Ph.D. stands for Pizza-Hut Delivering, Post-Hole Digging, Pussy Hating Dicksucker, with all due respect of course.  You pretend that you are an expert on economics, but your only solution is to COUNTERFEIT MONEY.  That sir, has no relation to economics of any kind whatsoever, because it is COUNTERFEITING MONEY, which is immoral, unjust, and criminal.  Of course you don't call it counterfeiting, and instead wrap it up in flowery rhetoric, smoke-and-mirrors, shell-game bullshit LIES, but if you would ever just read the constitution and get a fucking clue you might begin to understand what is really going on, but I doubt it sincerely.

Thu, 03/14/2013 - 19:08 | 3331100 steve from virginia
steve from virginia's picture

 

 

Funny, all the talk about 'technology' by Krugman 2.0 even as the government tries to figure out how to sacrifice the retirements of older workers to the giant banks.

 

Robbery from children and elderly is technology in action, folks!

 

Meanwhile from Energy Information Agency forecast:

 

  • U.S. crude oil production exceeded an average level of 7 million barrels per day (bbl/d) in November and December 2012, the highest volume since December 1992. EIA estimates that U.S. total crude oil production averaged 6.5 million barrels per day (bbl/d) in 2012, an increase of 0.8 million bbl/d from the previous year. Projected domestic crude oil production is expected to average 7.3 million bbl/d in 2013 and 7.9 million bbl/d in 2014.

 

  • Total U.S. liquid fuels consumption fell from 20.8 million bbl/d in 2005 to 18.6 million bbl/d in 2012. EIA expects total consumption to rise slightly over the next two years to an average of 18.7 million bbl/d in 2014,

 

Math can be tough but 18.6 - 7 = 11.6 million barrels per day that must be imported ... almost twice what is being extracted currently. The US is nowhere near being 'energy independent'.

 

It would be so if domestic consumption was less than 7 mbpd, however under that particular circumstance there would be much less than 7 mbpd production. Probably more like 3 mbpd which in turn would require domestic consumption to be less than 3 mbpd. Under that particular circumstance there would much less than 3 mbpd production ... you can see where this goes ... it's called 'Energy Deflation'.

 

What is in store for the future? Depletion never sleeps as Americans still drive mindlessly whether it is sensible to do so or not. Our conventional oil fields are being drained, meanwhile, credit depletion never sleeps. We've signed our lives away to the Giant Banks who are bleeding the country, credit is being extracted just like crude oil and diverted to the banksters. Despite the Fed, there is insufficient credit flowing to drillers, at some point fuel supplies are shut in.

 

BTW, Ryan is a complete moron, how he gets elected is mystery like the Higgs boson.

 

 

Thu, 03/14/2013 - 19:53 | 3331182 Flakmeister
Flakmeister's picture

The Higgs ain't that mysterious.... What would you like to know?

Thu, 03/14/2013 - 20:16 | 3331244 StychoKiller
StychoKiller's picture

Bell's Theorem is a mindfsck!

Thu, 03/14/2013 - 22:38 | 3331519 Flakmeister
Flakmeister's picture

Yes, it certainly is....

Thu, 03/14/2013 - 11:51 | 3329651 Bad Attitude
Bad Attitude's picture

I'm wondering if OPEC will lower their prices just enough to make these new US oil sources unecomical. They've done it before.

And, Dear Leader's energy policies/fantasies don't help The US energy outlook.

Thu, 03/14/2013 - 12:18 | 3329728 pods
pods's picture

Nah, they will just keep supporting hitpiece media about drilling in the US.  Better ROI for them.

pods

 

Thu, 03/14/2013 - 12:33 | 3329781 Coast Watcher
Coast Watcher's picture

Does OPEC have the extra capacity to drop prices that low? Tight oil needs $75-$85 oil to be profitable.

Thu, 03/14/2013 - 12:46 | 3329817 Flakmeister
Flakmeister's picture

I think we know the answer to your question....

Thu, 03/14/2013 - 18:11 | 3329735 Taint Boil
Taint Boil's picture

 

 

Too many sources to give credit:

 

There’s a lot of misinformation surrounding the Keystone Pipeline. In fact, the ongoing debate doesn’t even concern the pipeline. The first phase of the pipeline has been operational since 2010, running more than 2,000 miles through two Canadian provinces and six U.S. states. The debate is actually about the Keystone XL, an appropriately named addition that would add 700 miles to the original pipeline. 

“By diverting Canadian oil that would otherwise go to the Midwest, TransCanada has admitted the pipeline would increase the price Americans pay for Canadian oil by $3.9 billion. 

………Keystone XL would result in 2,500 to 4,650 temporary construction jobs, this impact will be reduced by higher oil prices in the Midwest 

TransCanada’s job claims are complete fabrications, and the Cornell report concludes that “KXL will not be a major source of US jobs, nor will it play any substantial role at all in putting Americans back to work.

The Keystone XL pipeline is designed for one thing—to send oil from Canada to the Texas Gulf coast and from there to overseas markets. 

According to its own secret documents submitted to the Canadian government, TransCanada expects the pipeline to increase gas prices in the Midwest by up to 15 cents per gallon. Currently, a surplus of gas in the region means that our prices stay stable. If the pipeline is built oil companies will be able to send their product to the Gulf coast for export, which will reduce this surplus and drive up costs for Midwestern consumers 

The real out-of-state special interests are TransCanada (a foreign oil company) and its lobbyists in Washington, who stand to make billions from this project…… 

Based upon the construction of the previous phases of the pipeline by TransCanada, it is very likely that half if not more of the steel pipes to be used in the Keystone XL will be imported from India, South Korea and Canada……… 

“What pipeline advocates . . . fail to mention is that much of the tar sands oil that would be refined on the Gulf Coast is destined for export. Six companies have already contracted for three-quarters of the oil. Five are foreign, and the business model of the one American company – Valero – is geared toward export.”……. 

Learn how to look things up.

Thu, 03/14/2013 - 13:48 | 3330039 Jack Sheet
Jack Sheet's picture

Economics - a mental abortion masquerading as an academic "disciplne"

Thu, 03/14/2013 - 11:39 | 3329608 Flakmeister
Flakmeister's picture

Oh my, we have a troll....

Remind me of the increase in API<45 "oil" compared to NGL and condensate? Or do you even understand the question?

Thu, 03/14/2013 - 11:41 | 3329617 Dr Paul Krugman
Dr Paul Krugman's picture

Remind me that I have a PhD in economics and you don't.

Thu, 03/14/2013 - 11:44 | 3329624 Flakmeister
Flakmeister's picture

and I happen to have a Ph.D. in physics....

And you don't....

Answer the question or STFU...

Thu, 03/14/2013 - 11:47 | 3329644 fonzannoon
fonzannoon's picture

crickets,

Excuse him while he wipes his ass with that Ph.D.

Thu, 03/14/2013 - 12:04 | 3329678 CrashisOptimistic
CrashisOptimistic's picture

Hey Flakdood, from the brief blurb yesterday, the evidence of shale oil being condensate and not crude derives from an EOG resources report.

It all evolves the norm of measurement.  Crude plus Condensate, which is a norm that was established because separating the two is a bother and original conventional fields were 86:14 crude.  In fact, 95:05 when the norm was put into place.  The overall avg is now 86:14.

The Eagleford is said to be reversed.  15:85.  Condensate from there is apparently low octane natural gasoline, which gets no transportation use and is sent to the gulf coast chemical plants.  And, of course, the overall mixture of condensate holds about 60% of crude's joules per barrel.

The study did not extend to the Bakken, but some academics note the geology forced this in the rock formations and there would be no reason to presume it is different in North Dakota.

So . . . no one is lying.  "What is your oil production?"  Our C+C output is XXXXXXX.  Perfectly truthful and no one dug deeper until EOG let the cat out of the bag. Condensate prices much lower and it's not a cat you want drilling investors to know about.

Thu, 03/14/2013 - 12:07 | 3329697 CrashisOptimistic
CrashisOptimistic's picture

Replying to myself for another comment.

There has been no significant technology improvement in North Dakota.  Horizontal drilling and fracking were used in the Barnett shale 20 years ago.

It stopped because it was not economical.

Access of this condensate from shale has happened because pricing changed, not because new techniques arrived.

Thu, 03/14/2013 - 12:13 | 3329715 Flakmeister
Flakmeister's picture

Yep... well said, the sleight of hand in the oil business is remarkable...

I love how the EIA has ~10% of US production arising from the volumetric gains in refining imported oil...

Thu, 03/14/2013 - 12:24 | 3329746 falak pema
falak pema's picture

Having said that; the presence of gas and condensate militates for bringing back down stream activities into US; petrochemicals and methanol/ammonia type plants seem like a given as does increased use of gas to replace coal in electrical production.

Its won't make USA energy independent, it will make USA make value added more, and hope that renewable price comes sliding down as in that area technology could drive price considerably down, for a huge EROEI ratio.

Thu, 03/14/2013 - 13:02 | 3329866 Flakmeister
Flakmeister's picture

Yes, for example, look at the charts for TNH, a producer of fertilizer using Nat gas feedstock....

Thu, 03/14/2013 - 13:05 | 3329881 CrashisOptimistic
CrashisOptimistic's picture

Well, there's no doubt that non crude hydrocarbons are feedstock for plastic plants, and they are a part of society as it is.

Personally, I focus only on transportation fuel, which takes that plastic to consumers.

Thu, 03/14/2013 - 13:05 | 3329877 Panafrican Funk...
Panafrican Funktron Robot's picture

Yeah, I think it's questionable that input prices are even "not going to go higher".  Capital and labor costs don't always have downward trajectories.  Though, the nominal price of oil will probably increase more sharply than either, ergo the drilling.

Thu, 03/14/2013 - 13:08 | 3329888 MSimon
Thu, 03/14/2013 - 12:09 | 3329705 cifo
cifo's picture

Prove it.

Thu, 03/14/2013 - 12:09 | 3329706 orangegeek
orangegeek's picture

Ted Kaczynski graduated from Harvard University in 1962, at age 20, subsequently enrolled at the University of Michigan, where he earned a PhD in mathematics.

 

Shall we talk about the intellectual superiority of PhD's some more?

 

Or shall we talk about what's going today?  Could you perhaps stop windbagging too?

 

 

Thu, 03/14/2013 - 14:55 | 3330297 Matt
Matt's picture

But Ted was an actual genius. Have you read his manifesto? It's pretty much the inspiration for "Fight Club", as far as I can tell. Too bad he somehow thought mailing pipe bombs would change the world (for the better; I'm sure it helped bring about more police state monitoring).

Thu, 03/14/2013 - 20:22 | 3331253 StychoKiller
StychoKiller's picture

Ted's "love letters" went to the wrong people.

Thu, 03/14/2013 - 12:23 | 3329741 Zolko
Zolko's picture

The science behind energy is "thermodynamics" not "economics", therefore your economics PhD has absolutely zero (0) relevance.

Thu, 03/14/2013 - 12:23 | 3329742 orangegeek
orangegeek's picture

When you are say economics, are you referring to examples such as the US Government's "investments" in companies like Solyndra?

 

If so, how's your home electrical bill doing these days?  It must have gotten cheaper, right?

Thu, 03/14/2013 - 12:25 | 3329754 Matt
Matt's picture

"economics dictates improvements in technology will reduce input costs"

I don't think oil companies are allowed to alter their accounting books using hedonic adjustments, unfortunately.

Thu, 03/14/2013 - 12:52 | 3329820 Kirk2NCC1701
Kirk2NCC1701's picture

"...economics dictates improvements in technology will reduce input costs and allow for greater output."

Sir, you either don't understand non-linear and stochastic systems, or you're sticking to simple linear equations and EC101 fundamental mantras.

ZERO new tech (out-of-pocket money!) would be spent by oil execs if they did not have to.  Why do they have to?  Because it's a non-linear system and it's increasingly difficult to keep pumping the "easy" oil at the old pumping rates.  If they want to keep up the pump rates (supply), they have to get at the deeper and less viscous (non-sweet) oil.  Think of EROEI (Energy Returned On Energy Invested).  And the EROEI curve is non-linear; over time the ER drops relative to EI.  So, no, tech alone does not solve your problems.  In part, because tech costs money, and these costs are passed on to the consumer.   In the case of frikkin fracking (that sounds good), the TCO (Total Cost of Ownership) includes the huge amounts of water that must be accessed and used, and the cost-impact of its effect on the ground water.  This is such a scary and frothy topic, that oil execs and politicians beholden to them would rather not open that can of worms.  Till they have to.

Note also I'm using real-world units of "energy", not fiction/fiat units of 'currency'.  But my technical arguments will be wasted on you, since you are not promoting so much a real science, but a 'religion'.

Thu, 03/14/2013 - 13:11 | 3329908 Panafrican Funk...
Panafrican Funktron Robot's picture

I'm glad you brought up water, that crisis is going to dwarf energy. 

http://www.zerohedge.com/news/2013-03-06/guest-post-30-facts-coming-wate...

Key point:

This sobering message emerges from the first U.S. Intelligence Community Assessment of Global Water Security. The document predicts that by 2030 humanity's "annual global water requirements" will exceed "current sustainable water supplies" by forty percent.

Thu, 03/14/2013 - 15:10 | 3330349 Matt
Matt's picture

Don't worry about it, there are researchers developing pulse lasers that can create clouds and make them precipitate on demand.

http://www.nature.com/ncomms/journal/v2/n8/full/ncomms1462.html 

Thu, 03/14/2013 - 18:14 | 3330949 Bunga Bunga
Bunga Bunga's picture

Improved efficiency has happened over the centuries, but will result in more consumption, more ressource usage, not less. Energy efficienency improved in average 1% per year over the last centuries, but comfortable economic growth is in the 3-4% range, resulting in 2-3% ressource usage growth or doubling every 23-35 years. It comes to my mind that Keynesians believe they can just print a new earth every time they exhausted the one before. Dr. Krugman, have you ever had the chance to play that chess game with rice grains in your institution? Or do the guards take it always away?

Thu, 03/14/2013 - 11:31 | 3329576 orangegeek
orangegeek's picture

Improvements in technology like transporting oil via a pipe (keystone) rather than Buffet rail?

 

What a techological revolution.

Thu, 03/14/2013 - 12:13 | 3329717 cifo
cifo's picture

Improvements in technology will make oil obsolete.

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