Why The U.S. Can't Be Called A "Swing Producer"
Submitted by Arthur Berman via OilPrice.com,
Daniel Yergin and other experts say that U.S. tight oil is the swing oil producer of the world.
They are wrong. It is preposterous to say that the world’s largest oil importer is also its swing producer.
There are two types of oil producers in the world: those who have the will and the means to affect market prices, and those who react to them. In other words, the swing producer and everyone else.
A swing producer must meet the following criteria:
- A swing producer must be a net exporter of oil.
- A swing producer must have enough daily production, spare capacity and reserves to influence market prices by balancing supply and demand through increasing or decreasing output.
- A swing producer must be able to act authoritatively and quickly to increase or decrease output.
- In the real world, a swing producer is a euphemism for a cartel. No single producer has enough oil leverage to balance the market and influence prices by itself. That includes Saudi Arabia, Russia, and the United States, the top 3 producers in the world. Obviously, it also includes U.S. tight oil.
- A swing producer must have low production costs and have the financial reserves to withstand reduced cash flow when restricting or increasing supply is necessary to balance the market.
So, let’s go down the list for OPEC and U.S. tight oil.
OPEC’s net exports for 2014 were 23 million barrels per day (mmbpd) (Figure 1). U.S. net exports were -7 mmbpd. In other words, the U.S. is a net importer of crude oil. A net importer of oil cannot be a swing producer.
Figure 1. OPEC and U.S. 2014 net crude oil exports.
Source: OPEC & Labyrinth Consulting Services, Inc.
(Click image to enlarge)
This will not be substantially changed by the repeal of the crude oil export ban because U.S. consumption of crude oil (16.3mmbpd) exceeds domestic production (9.2 mmbpd) by 7.1 mmbpd. If exports of tight oil increase, imports will have to increase by an equal amount to meet demand.
That should be enough to end the discussion about whether U.S. tight oil is a swing producer but I will finish going through the list.
OPEC exists because none of its members alone meet the criteria needed to balance the market and affect prices. OPEC produces 31.4 mmbpd of the crude oil + condensate (47 percent of world production). It has approximately 1.5 million barrels per day (mmbpd) of spare capacity, and it has 72 percent (1220 billion barrels of oil) of the world’s proven reserves (Figure 2). The members of the cartel represent countries whose leaders have the authority to cut or increase oil production at will. Saudi Arabia alone has about $660 billion in cash reserves. Its production costs are less than $10 per barrel.
Figure 2. Comparison of OPEC and U.S. tight oil production, spare capacity and reserves.
Source: EIA, Drilling Info & Labyrinth Consulting Services, Inc.
(Click image to enlarge)
U.S. tight oil accounts for less than 5 percent of the world’s production of crude oil + condensate (3.7 mmbpd). It has approximately 0.23 mmbpd of spare capacity and less than 1 percent of the world’s proven reserves (13 billion barrels of oil). U.S. tight oil producers do not and cannot act together. Tight oil producers spend twice as much money as they make, and have up to 5 times more debt than annual revenue. Its production costs are $65-$70 per barrel.
U.S. tight oil is on life-support at $35 per barrel oil prices.
OPEC is a swing producer. U.S. tight oil is not.
Truth vs. Confirmation Bias
In April 2015, Yergin told CNBC, “What does it mean when you say the U.S. is the new swing producer? It’s much easier to swing down than swing up.”
What he meant was that over-production of U.S. tight oil helped cause the global price of oil to collapse in 2014, to swing down. It had nothing to do with really being the swing producer.
That was a few days before CERA Week, the pricey annual love-fest that Yergin’s company IHS throws in Houston for the oil and gas industry to feel good about itself. It was a clever-sounding trailer to publicize the $7,000-per-ticket event.
Later, in June 2015, Yergin told the Wall Street Journal that “now the U.S. is a swing producer, albeit an inadvertent swing producer as it didn’t set out to take that role.”
A swing producer cannot be inadvertent. A swing producer deliberately increases or decreases its production to balance the market, whether for short-term price advantage, or for demand stimulation and long-term price advantage and market-share.
Either Yergin doesn’t understand what a swing producer is or his swing-producer comments were manipulative and meant to support some agenda.
Many Americans want to believe that the U.S. is nearly energy independent and a major geopolitical force in the world because of oil and gas production from shale. They would like to stick America’s thumb in OPEC’s eye.
Yergin said the U.S. was the new swing producer. What was heard was that America had made OPEC impotent. It was repeated enough by the press and other supposed experts that its truth was confirmed because people want to believe it–even though it is untrue.
Confirmation bias is the tendency to find support for our preconceptions. It may make us feel good but it is a poor basis for decisions. Investors beware.
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LOL "energy independence" I've heard so many idiots dropping that one in amongst "frack, frack, frack, frack".
Too much trouble to explain it. I'll just let 2016 do the work for me.
Some dipshit actually called the US a swing producer? When will the insanity stop?
I can't seem to find that article here on ZeroHedge....I think....that showed a graph and chart showing how much oil in real terms domestically in the States at the very peak of our production in 1973 and how much we were importing from abroad, primarily the Middle East. They contrasted that with the latest figures including Shale Oil production and how much we are importing. It showed a 20-30 percent INCREASE in foreign imports and a @ 3 percent DECREASE in domestic production relative to the 1973 figures.
In other words.......even though Shale Oil has boosted our domestic production, it has NOT reached the heights set back in 1973. YET....we import MORE oil as a percentage than we did during the Oil Crisis of 1973.
And these lying motherfuckers on Wall Street and the Government were touting we were going to be "ENERGY INDEPENDENT" in NO time. I mean.....there are Lies....Damn Lies....and Statistics. And there there were the Shale Oil Energy Independence Lies.
Obama swings both ways. That must count for something?
If the middle east is going to be blown to bits and what is left be saturated with semi-depleted uranium, both the US and Russia would need to prepare by ensuring they have sufficient resource capability, in storage or producable, to be able prevent short-term debilitating shortages.
In the long run, no one needs oil... but they cannot tell us that because then they would lose a method of controlling us.
Tough to say what role tight oil will play in tomorrow's NRG equation. The dust has to settle on the interest rate suppression/ free financing that powered the fracking boom.
20 years from now, we'll still be using oil for most of our transport needs, and we'll still be developing new extraction technologies that will incrementally bend the production cost curve down.
I doubt it....
This last surge of production was fueled by debt and the world is tapping out again similar to '08 about being able generate more of it...
But I do agree with you that oil will still be primary transportation fuel...
Agree. And no way the world's economies can support 8 billion people without a ton of debt.
Flak, I'm impressed that you took the time to comment.
I know how completely oblivious you are, all things Solar Cycle?
Yen,
Do some math.
I'll get right on that...
Ohhh, I did some homework?
Trolling in denial are we?
Indeed. Especially when one region, the Bakken, requires about 1,700 wells in the next year (if it's not worse than 2015) to keep production flat.
https://www.dmr.nd.gov/oilgas/stats/historicalbakkenoilstats.pdf
Government need...: 20 years from now, we'll still be developing new extraction technologies that will incrementally bend the production cost curve down.
I wish I would share the same faith in science as you do.
In any event, your statement is an opinion. Not based in fact because new discoveries does NOT offset depletion. And let’s not even consider exponential growth of world’s population that want to live like an American capitalist rather than an American Amish.
We DO NOT have 20 years.
Professor Al Bartlett: I got a report recently (1991) from these giants (surface mining and deep underground mining) coal fields of Kentucky, West Virginia, and Virginia and they estimated that we have another 30 years (2021) before it becomes uneconomically to mine there.
https://www.youtube.com/watch?v=umFnrvcS6AQ&feature=youtu.be“#t=30m22s”
Good Lord. You do know that nobody knows how oil is created, right? There are some abiotic theories out there suggesting oil gets produced every day. Internal combustion engines for personal transport can, with $ investments, can become >25% more fuel efficient. From 1973-1990ish, fuel economy was a big deal. Then it was bigger SUVs and bigger engines delivering more HP that became THE thing (and thus lower gas mileage). Now the pendulum, tentaitvely, is swinging to fuel economy. Dont rule out paradigm shift, i.e. people begin to look @ that personal transport 'thing' as nothing more than a basic necessity, which would mean lighter, smaller, cheaper, and needing less engine. Finally, I doubt the world population continues to grow @ 0.75% per year. war, plague, famine. . . These things happen.
You lose credibilty when you suggest abiotic production has anything to do with reality...
The origin of oil is very well understood...
I think, Saudi Arabia, better start looking over their shoulders!
US may want to become the "swing producer"
Producer by invading? That’s too much work. Too messy. It won’t last very long.
BUT,
"Give me control of money and I care not who makes it's laws." — Mayer Amschel Bauer Rothschild .
HOWEVER, once that’s gone, preparer for an unprecedented ugliness.
If it weren't for all the subprime/junk credit that went into shale, we might not be in this mess. Now that's in the process of being liquidated, and borrowers in the sector will likely face a permanently elevated cost of capital.
Being Exceptional, can we at least "Self-Identify" as a Swing Producer?
Don't you oppress me with labels that make me feel unsafe!
Boy,.....I`m telling you....Oil is going to be the golden goose, like 23 dollar gold was......
Just wait till all those subprime auto loan Escalade SUV`s hit the street, to soak up all that cheap gasoline.......
I love that last chart, it's hilarious. I remember trying to bring this issue up as well as the temporary nature of the shale boom for years, trying to warn people that this whole deal was hyped. I thought they might skin me alive. I would have loved to have posted that chart in a couple of oily lunch rooms under the heading "Shale Revolution", "energy independence".
You can't save people. They will all do it again next time. The second some low level supervisor from a oil services company tells them how great everything is they get all giddy thinking they have inside information.
OT: If you have any interests in AZ we are flooding right now. It's been raining for 4 days. My work is flooded out even, which is okay with me right now.
I live in Az as well, this El nino crap is really pissin me off. Im headed to Quintana Roo in 2 weeks and staying for three and if its like this when i return im headed back. Fk this cold and rain.
Good for you. Everyone else has had a warm winter in the US and Flag has like 2 feet of snow... WTH.
Bull crap.. .. this story is all smoke. The Saud is going down. Some one made a deal before that Brisbane meeting in '14. The story was out by then, executed in late late spring. NOW you tell me who teamed up with WHO and became the big swing producers (hint, one of them got a 2 million population growth in about 1 year and this year they are openly acting together). The Saud's are suckers, they took the bait.