Tag: "exporting"

U.S. Energy Infrastructure Still Lacking

Energy booms, whether from oil or gas, will continue as both technology develops and more resources are discovered. However, each energy boom puts a strain on our existing energy infrastructure. For instance, oil can be transported by truck, ship, rail and pipeline. Pipeline is the safest and most reliable way to transport oil. Even with 185,000 miles of liquid petroleum pipeline across the United States, there is just not enough to transport the huge volume in the current boom. The lack of pipeline has increased transportation by rail and rail accidents during this time.oil_by_rail

  • The recent increase in transportation of oil by rail has increased the number of rail accidents.
  • In 2014, 70 percent of petroleum products and crude oil were shipped by pipeline, while 3 percent was shipped by rail.
  • A recent study by Fraser affirms their safety by reporting transporting oil by pipeline is 30 times less harmful than by train.

More and more oil is extracted every day and our storage capacity is overflowing. Two things need to happen that will greatly alleviate this situation. First, more pipelines are needed to transport all of this new oil. Second, all of this oil needs a place to go. Building more storage capacity only temporarily alleviates the problem. The crude oil export ban needs to be lifted so that the oil can get out of the over capacity storage units and enter the energy market.

The Case for Lifting the Crude Oil Export Ban

The United States is running out of room in its crude oil storage facilities and the question is ― where does the crude go now? As domestic crude oil production continues to rise, it has no place to go due to an obsolete ban on the exportation of crude oil in the U.S.

The International Energy Agency said in its monthly oil market report that U.S. supply shows no signs of slowing down, an assessment that pushed the price of crude below $57 a barrel and lowered gas prices at the pump. Low gas prices led to record amounts of driving in 2014, culminating in a record-breaking December, new federal data shows.

With the U.S. now producing more oil and natural gas than Russian and Saudi Arabia, over 11 million barrels a day (55 percent increase from five years ago), lifting the U.S. oil export ban would:

  • Add over $1 trillion in government revenues by 2030.
  • Create 300,000 more jobs a year.
  • Increase current U.S. production from 8.2 million B/D currently to 11.2 million B/D.
  • Cut the U.S. oil import bill by an average of $67 billion per year.
  • Lower gasoline prices by an annual average of 8 cents per gallon.
  • Save U.S. motorists $265 billion for during the 2016-2030 period.

Despite the fact that oil imports are at the lowest level since 1985, the U.S. still imports 33 percent of its oil from foreign sources. A broad view by the public is that U.S. oil should stay at home will test export proponents. A majority of voters, 53 percent, opposed exporting oil. At present, the current policy is discouraging additional crude oil supplies from being brought to market, which actually makes gasoline prices higher than they otherwise would be. The increased economic activity resulting from the rise in crude production would support an average of 394,000 additional U.S. jobs over the 2016-2030 period, with a peak of 964,000 jobs in 2018.

Doing away with exports restrictions would also generate added benefits to U.S. household income, gross domestic product (GDP) and government revenues. The average disposable income per household would increase by an additional $391 in 2018 as benefits from increased investment.

The current hydraulic fracturing and American energy boom is reducing oil imports by 22 percent next year. Lifting the crude oil export ban would increase the energy boom. This boom could also reduce the oil imports of European countries. The United States could replace Russia title as “Europe’s gas station” and provide all of Europe’s energy needs.

Upheaval — Natural Gas Growth Could Redefine Decades

Over the past few years, natural gas growth has been an energy investor’s fallback strategy. With a historically positive growth in almost every company’s stock and unperturbed fundamentals — promoted by technological advances — it is highly unlikely that such an industry trend is cyclical.

Some of gas’ most representative stocks (as deemed by the New York Stock Exchange) for companies such as Sempra Energy, Intergys Energy Group Inc. and AGL Resources Inc. were reformatted and indexed by the NCPA:

Gas Index

An unusually warm winter reduced energy demand and put a damper of gas prices, which suppressed growth towards the end of the graph in 2014. However, projections made by the Energy Information Administration (EIA) show that the sector will continue to expand at a stable rate throughout 2015 — supporting the theory that the market growth is due to a structural change.

In the case of the United States, this may be our golden age of natural gas. The U.S. is ready to be a net gas exporter by the end of this year, Market Realist proclaims “Some of the higher production in the Eagle Ford Shale in South Texas will be set to export to meet the growing demand from Mexico’s electric power sector.” On the other side of the Pacific, the same kinds of environmental laws that brought American coal to heel, such as the Clean Air Act (CAA), have come into effect as of January in China. The most prominent of which are the Chinese Air Pollution Prevention and Control Law’s amendments, which were made in response to deteriorating atmospheric quality over the country and the recent environmental initiatives taken between the United States and China. Thus, coal’s rising costs have instigated a shift in demand, one that will start favoring gas — this is a trend that could soon be seen globally.

But where do we stand as gas producers, and why does that matter?

world gas production

wold gas reserves

The United States is by no means the owner of the world’s largest natural gas reserves, however from the EIA’s datasets, one can intuitively see that for its reserves, the U.S. has an overwhelmingly dominant production capacity — meaning we have the most resources to extract and process gas. Should private and public players move to ease trade barriers between the countries, this is an advantage that the U.S. is unlikely to lose for years given China and other BRIC countries’ surging energy demands. Specifically, China’s policy changes have provided a niche for emerging American liquefied natural gas (LNG) vendors to seek partnership. We will not have a production advantage over other countries forever, and as the chart Known Natural Gas Reserves Across the World shows, a failure to capitalize on this opportunity would be a serious blow to American leadership and competitiveness on environmental, energy security and economic fronts.


SOTU NCPA: The Invisible Hand and Unabated Oil Production

In OPEC’s 2014 World Oil Outlook (WOO), the energy giant projects sustained oil prices of over $100 per barrel for 2015 with slight drops in future oil prices as low as $95 per barrel…

Recent events have proven their short-run projections to be dead wrong.

In his State of The Union (SOTU) Address, President Obama came well-stocked (though certainly not well-received in the new Republican House and Senate) with good economic news which he readily used as ammunition to suppress critics. However, some of these developments, such as descending oil prices, are difficult to assign responsibility to.

What can easily be correlated is oil prices and popularity.

Throughout the night, the President acted triumphant and suave — touting what CNN claims to be above a 50% approval rating — it was as if President Obama came into Congress surfing on America’s wave of cheap oil. However, a sobering realization is that this same wave is what crashed down on President Jimmy Carter’s political career in 1979, as oil prices rose by approximately $60 a barrel, Carter’s approval rating subsequently sank to new depths below 30%.

Though the President is a fundamental player with substantial power in the private arena as well as the public, history has made it clear that the global forces determining supply and demand still reign supreme.

With respect to the agents of supply and demand: Citi’s New York-based investment bank is sounding the alarm that these oil prices may be here to stay, and in an increasing scramble to create economies of scale, there are increasing murmurs of mergers in the American oil and gas industry. Citi’s claims champion innovations such as hydraulic fracturing and horizontal drilling as being the reasons we can expect full oil and gas independence by 2020, if not sooner.

However, these claims are not without skepticism, after the beginning of the U.S. oil and fracking boom, the U.S. Energy Information Administration (EIA) published a more conservative timeline of U.S. oil import balances. Without omission of data and with proper considerations below, the NCPA has juxtaposed the two forecasts for your own judgment:

Oil Deficit and Surplus

Important Disclaimers:

  • Citigroup’s oil balances study “Energy 2020: Out of America,” was conducted more recently than the EIA’s study, “AEO2014 Early Release Overview.” It is possible that newly available data on the oil and fracking boom made their study more accurate
  • Citigroup undoubtedly holds financial claims with its affiliates in the crude oil and natural gas sectors, affiliates who may be looking to repeal the 1975 Energy Policy and Conservation Act, an antiquated government policy barring the export of oil from the U.S. If so, Citigroup has both political and financial motives to overstate growth in domestic oil and gas production
  • Likewise, the U.S. Energy Information Administration (EIA) may have strong political pressures to underestimate future domestic production

What is certain however, is that the collateral effects of a sustained increase in American supply would redefine the global environment for businesses and governments:

  • Business Insider notes, these low prices make way for the perfect time in which price-distorting subsidies worth billions of dollars could be erased without a major blow to the U.S. economy
  • Goldman Sachs and Slate.com assert that a decrease in overall drilling activity, while an increase in its efficiency has already amounted to a $75 billion tax-cut for Americans, a growing figure which they believe will become more valuable in the hands of middle-class Americans rather than in oil companies where much of the revenue may be redirected into the pockets of foreign investors. Similarly, during the SOTU Address, President Obama stated “the typical family this year should save $750 at the pump,” which amounts to a little over $80 billion in savings
  • Reuters proclaimed that new permits issued for oil drilling fell by 40% in 2014, a reflection of oil prices… this is a statistic that also represents the trend of unprofitable prospects in exploration, one which may slow the discovery of large oil reserves and distort “peak oil” claims
  • During the SOTU Address, President Obama touched upon perhaps the most important point, “we are as free from the grip of foreign oil as we’ve been in almost 30 years.” Indeed, and if Ted Cruz successfully repeals the Energy Policy and Conservation Act, the geopolitical leverage of groups such as OPEC and countries such as Russia would begin to erode in a way we have yet to see, and perhaps permanently

SOTU NCPA: Energy Forecast or Lack of One

With the State of the Union Address tomorrow night, we can expect the president to talk about energy and environment ― much more about environment than energy. The president’s actions show how low of a priority our national security and energy independence is on his list of “top issues.” Besides speaking at international climate summits around the world and having a climate change researcher siting with the first lady tomorrow night, the president lists energy #7 out of his 7 top issues. With a listing after climate change, the energy and environment section is then split in half between energy and environment topics with the other half covering climate change.

Here are the very few energy topics listed:

  • Reducing Our Dependence on Foreign Oil ― the administration admits to current increased amounts of domestic oil production as the factor that is reducing our foreign oil dependence. Increasing that production is the solution, not decreasing carbon emissions and more renewable energy sources.
  • Safe and Responsible Domestic Oil and Gas Production ― the plan is to aggressively regulate oil and gas production, hydraulic fracturing, artic drilling and rail safety. Regulations will increase inefficiencies and costs.
  • Carbon Capture and Sequestration Technologies ― more regulations targeting new and existing coal-fired power plants. Already costing billions to implement, such regulations will greatly increase costs for plant operation, weaken the economy and burden taxpayers.
  • Advancing Clean Energy ― a series of renewable usage in homes goals, tax credits and subsides. All government interference in the energy market is artificial and ends up harming everyone.
  • Advancing Energy Efficiency ― the administration’s view of energy efficiency is cutting down carbon emissions and reducing the demand for U.S. oil. Energy efficiency should actually be how well developed our energy production, transportation and delivery are with the president’s help. Looks like the president has not been interested in true energy efficiency.
  • Developing Clean Fuels ― biofuels are extremely costly, unnecessary and weaken the automobile industry that has to keep up with the outrageous Renewable Fuel Standards.

Our energy independence is a geopolitical/national security issue that should be critical to our nation. We must do all we can to let our energy companies produce and export refined and unrefined energy resources. Only then will we be able to keep ourselves off of foreign oil dependence, keep gas prices low for the poor, increase our role in the global energy market and boost our economy.

Keep Oil Prices Down by Passing Keystone XL

The Tampa Bay Times conducted a fact check on some statements made by Senator John Thune of South Dakota on Sunday. The fact check covered two main points:

―President Barack Obama’s own administration has done five environmental impact assessments of the Keystone XL pipeline

According to the fact check, the U.S. State Department actually had one report on the pipeline that included several drafts and a major revised version that considered a more environmentally sound route change in the pipeline.

―All of which have said it would have a minimum impact on the environment

While the State Department study found that the pipeline would have minimal impact on the environment, the Environmental Protection Agency worries of a greater impact from the pipeline’s greenhouse gas emissions than the study found.

The new Republican leadership in the Senate plans to have a friendly, open amendment process with Democrats with a goal of passing the pipeline bill. The bill is expected to have enough votes to be filibuster proof, and if not enough to override a presidential veto, enough to force the president to wield his veto pen and take a position on this controversial issue. The claim that gas prices are too low for the new addition to Keystone to have a positive economic impact does not consider that the pipeline will take time to build (and time to get approved) and by then, prices could be up even to record high prices.

United States to be #1 Energy Producer by 2020

At the current rate of energy resource production, the United States is set to surpass Saudi Arabia and become the top oil producer in the world as early as the year 2020. The U.S. also has huge natural gas reserves that are larger than Russia’s reserves.

Energy booms are also happening in Canada and Mexico. North America will soon be a major energy market player in the world. As regulations and restrictions to oil and gas exportation are lifted, the U.S. will be able to provide places, such as Europe, with much needed energy resources and relief.

The U.S. oil/gas trade balance:

  • Deficit of $354Bn in 2011
  • Breakeven by 2018
  • Surplus of over $80Bn in 2020

Rising oil and gas production and exportation in North America will greatly reduce any and all imports and completely change the entire geopolitical energy and power structure in the world.

Fast-Track Keystone XL Plan Doomed to Fail

Coordination by the House and Senate to quickly pass the Keystone XL pipeline was doomed to fail last week. The coordination was awkward, to say the least, the House easily passed the approval of the pipeline, yet again, while the Senate had an entirely different situation.

The Senate never had the votes to pass the approval process. However, one senator’s seat was threatened in a runoff. Senator Mary Landrieu’s support of the pipeline and its approval in the Senate, could have been enough to help her win the runoff election. Harry Reid called for the vote and said that they had the 60 votes for approval. They miscounted. Now Landrieu’s seat is really in jeopardy. If the vote had been called months earlier, the votes could have been mustered to have more than enough for approval of the pipeline.

After a wasted effort due to a miscalculation, the pipeline will still have enough votes in the Senate next year from the election. If the opponents of the Keystone XL pipeline come to terms with the economic benefits of the pipeline, they may understand how much their fears were over exaggerated.

The KEEP Energy Act

If it were not for the $300 billion boost to the U.S. economy and the more than two million jobs added each year from the oil and gas industry, we could have been in a second Great Depression. To add to this economic boom, the 114th Congress can quickly pass new legislation, such as the KEEP Energy Act according to Mark P. Mills in today’s Forbes.

KEEP is an acronym for Keystone, EPA, Exports and Production.

  • Keystone XL pipeline approval would be a very important symbolic victory for the United States and its allies. The pipeline would also add thousands of more jobs.
  • The Environmental Protection Agency needs to be reined in. The EPA’ rules and regulations threaten the economy and is gearing up for new rules for the fracking boom.
  • The oil and gas export ban over the past several decades, has not made sense for one of our most basic values of free global access to trade. There is even more reason to end this obsolete ban with our allies in Europe and elsewhere in great need for these energy supplies.
  • Energy production could increase much more if the federal government opened more lands to drilling and if there was more investments made in technologies such as horizontal drilling and hydraulic fracturing.

Unnecessary Fear of Falling Energy Prices

As the recent energy boom is currently in full stride, there are now increasing fears that production output will decrease as profits are now lower for big oil companies. Two Wall Street Journal articles talk about the recent changes by several of the big oil companies in international investments and drilling and exploration efforts. One article “Big Oil Feels the Need to Get Smaller“, found that the three big oil companies of Shell, Exxon and Chevron have been spending more on operations than they have been bringing in.

Another WSJ article, “Cheaper Energy Could Be a Mixed Blessing“, focuses on small to mid-sized energy companies that will struggle with lower oil prices. While this article has a similar fear as the other WSJ article, it also talks about how great the boom and lower prices are for the U.S. economy.

There is much opportunity for everyone during this energy boom. The fear of energy companies scaling back or suffering from falling prices should not act as a reason to keep the prices up. An open and free global energy market will adjust itself naturally to changing prices and opportunities. Lower prices can offer tremendous opportunities as well as open doors to new energy markets.