Oil / Black Gold / Texas T
The United States was the world's top producer of petroleum and natural gas hydrocarbons in 2013, surpassing Russia and Saudi Arabia. For the United States and Russia, total petroleum and natural gas hydrocarbon production, in energy content terms, was almost evenly split between petroleum and natural gas. Saudi Arabia's production, on the other hand, heavily favors petroleum. Since 2008, US petroleum production has increased 7 quadrillion Btu, with dramatic growth in Texas and North Dakota. Natural gas production has increased by 3 quadrillion Btu over the same period, with much of this growth coming from the eastern United States.
Comparisons of petroleum and natural gas production across countries are not always easy. Differences in energy content of crude oil, condensates, and natural gas produced throughout these countries make accurate conversions difficult. Total petroleum and natural gas hydrocarbon production estimates for the United States and Russia for 2011 and 2012 were roughly equivalent—within 1 quadrillion Btu of one another. In 2013, however, the production estimates widen out, with the United States outproducing Russia by 5 quadrillion Btu.
Non-OPEC production is expected to significantly rise in 2014, by about 1.2 million barrels a day. The US and Canada will produce nearly all of that. The U.S. oil boom is due in large part to the hydraulic fracturing technique, commonly called fracking. It pumps chemicals underground to fracture shale formations, releasing more natural gas and oil. The industry says the method is safe for the environment, but critics say it can poison drinking water. OPEC estimates demand for its crude oil in 2014 will be around 29.6 million barrels a day, about one million barrels a day below 2013 production. The boom in production from the shale oil in the United States and the heavy oil sands in Canada is going up so fast that they are talking all of the incremental demand in the market. The market share is not great for OPEC, but as long as the price is over a hundred dollars they’ll be happy.
Nigeria lost its biggest customer – the United States. The oil that’s being knocked out of the US import mix by the booming shale is the kind of oil that Nigeria produces – light, sweet crude oil. That is no longer required by the refineries in Texas and Louisiana. So Nigeria is having to find new markets for its oil. Algeria, another OPEC member, finds itself in a similar situation, with its market in the US cut in half. China is a potential customer. That’s where fellow OPEC member Angola is doing a lot of business.
The Paris-based IEA said in its annual Medium-Term Oil Market Report released May 14, 2013 that increased production in the northern US state of North Dakota and in the oil sands of Canada "will be as transformative" to the world oil market over the next five years as increased oil demand in China has been over the last 15 years. IEA executive director Maria van der Hoeven said the North American advance "has set off a supply shock that is sending ripples throughout the world." The change has been so dramatic that the United States could surpass Saudi Arabia as the world's largest oil producer by 2020.
The agency said that during the next five years, North America will account for nearly two-thirds of the growth in the world's oil supply among countries outside the Mideast-based Organization of the Petroleum Exporting Countries (OPEC). OPEC currently accounts for about 35 percent of the world's oil production. New oil production technologies have played a key role in the North American advance — chiefly hydraulic fracturing, commonly referred to as fracking, the process by which torrents of water and other materials into rock formations to loosen oil deposits for drilling. The boom in shale gas production in the US and its wide-ranging influence on markets rocked the gas world. Liquefied gas deliveries were redirected, altering the already fragile balance of demand and supply in traditional markets for pipeline gas in Europe. The psychological effect proved just as strong. Many began to speak about a "shale revolution," a technological breakthrough, and an upcoming realignment of the global gas industry. The governments of nations depending on the import of gas see in shale their salvation and freedom. Experts predict a decline of the "era of diktat" on the part of conventional natural gas exporters [notably Russia].
The number of earthquakes in the central and eastern United States has increased dramatically over the past few years, and scientists think the reason could be due to the disposal of wastewater associated with oil and gas production. More than 300 earthquakes above a magnitude 3.0 occurred in the three years from 2010-2012, compared with an average rate of 21 events per year observed from 1967-2000. The actual hydraulic fracturing process is only very rarely the direct cause of felt earthquakes.
Oil prices experienced a steady fall in the first half of 2012. Oil prices fell from around $125 per barrel in March 2012 to around $100 by June 2012. With the world economy slowing, by late June 2012 the price of oil on the New York market dropped below $80 a barrel for the first time since October 2011. By August 2012 benchmark US crude prices were hovering at around $90 per barrel, while Brent crude, which sets the price for oil imported into the US, was hovring abour $105 per barrel in London. Almost half of the Russian government’s revenue comes from various taxes on oil and gas exports, which leaves the Russian economy highly vulnerable to a fall in oil prices.
Prices were high at the beginning of the year because oil demand was picking up again, supply was being constrained, with minor producers such as Syria, Yemen, and South Sudan off line, and Libya still off the market to a certain extent. The supply side also improved, partially because Iraq had come online. Iraq saw the opening of new oil fields like this one in West Qurna in April 2012, developed in partnership with Russian giant Lukoil. Its vice president, Sergei Nikiforov, said, “Today, Iraq and Russia inaugurated the giant oilfield of West Qurna, one of the largest fields discovered in the world.” More importantly because other OPEC members, particularly Saudi Arabia, have been increasing their production, in part in an effort to offset the loss of Iranian production because of the embargo.
The price for Brent crude oil on the London market reached a 30-month high of nearly $120 a barrel in February 2011. But the price retreated somewhat after Saudi Arabia, the world's biggest oil exporter, offered assurances that it would increase production to account for any cutback in Libya. The price of oil on the New York market topped $100 a barrel and then fell below that level.
Energy prices rose in May 2009 following reports suggesting that the U.S. economy may have reached a turning point in the current recession, at least in some sectors. The price of West Texas Intermediate (WTI) crude oil was expected to remain relatively flat for the remainder of 2009, averaging about $55 per barrel over the second half of 2009. Assuming a modest economic improvement in 2010, WTI prices were expected to average about $58 in 2010. Price increases will likely be muted by the substantial surplus production capacity held by members of the Organization of the Petroleum Exporting Countries (OPEC), along with very high level of inventories among members of the Organization for Economic Cooperation and Development (OECD).
Crude oil prices fell to about $50 per barrel, about $100 per barrel off their peak level in 2008, and most forecasters projected 2009 global oil demand to be over 1 million barrels per day (bbl/d) lower than in 2008. In response, OPEC s met four times to consider production cuts to arrest the oil price decline -- then stable at about $50/barrel -- and cut rising oil inventories. With the U.S. average retail price for regular gasoline above the $2 per gallon mark, many Americans were wondering if even higher gasoline prices await this summer. Did the surge over $2 per gallon signal a re-run to the $3 level or higher this summer, adding to the budgetary strain already experienced by average consumers? Probably not. Gasoline demand has essentially flattened relative to year-ago levels and looks likely to remain flat or grow modestly over the summer, as long as retail prices remain as low relative to year-ago levels as they currently are and the economy does not worsen.
The plummeting price of oil had an impact on nations that restrict oil exploration and production to state-owned companies. Many used the revenues to further their ideological objectives and expand their influence, and falling prices could affect such policies. Russia's new military resurgence is considered to be fueled by petrodollars. Iran has used its oil revenues to extend its influence in the Middle East and defy sanctions aimed at blocking its nuclear ambitions. And Venezuelan President Hugo Chavez has gained power and influence to counter US policy in the Western Hemisphere because of the steady flow of oil money.
The Russian economy was among the hardest hit of any country during the global economic crisis. Russia - a major energy exporter - has not only suffered banking and stock woes, as in the rest of the world, but also a precipitous drop in the price of oil. The decline is affecting the Russian people and their economy.
The International Energy Agency predicted oil prices would climb substantially over the next 20 years, despite current trends. In a report issued 12 November 2008 the executive director of the IEA, Nobuo Tanaka, said "the era of cheap oil is over." The agency predicts the price of oil will average about $100 per barrel over the next seven years. OPEC president Chakib Khelil said the ideal price of oil should be between $70 and $90 per barrel. Petroleum analyst Mike Ala of the Imperial College London, said on 12 December 2008 the price will rise, maybe into the $70 range - mainly because of seasonal demand for fuel in winter in the northern hemisphere.
By 05 December 2008 the price of crude oil had declined another 25 percent, to $40.81 a barrel, the biggest weekly plunge since the Persian Gulf War in 1991. On 21 November 2008 crude oil fell to lowest level in more than three years - below $50 a barrel. Light, sweet crude for December delivery dropped $4 to $49.62 a barrel on the New York Mercantile Exchange. Price slid to as low as $48.64 a barrel, the lowest level last seen in May 2005. Some estimate the average price of oil will drop to $40 a barrel in 2009.
Crude oil dropped below $59 a barrel in New York trading Tuesday 11 November 2008 on continued bad economic news in the United States, the world's largest energy consumer, and fears of a global recession. The price of a barrel of crude oil for future delivery declined $3.40 cents to $59.1 on the New York Mercantile Exchange. Futures touched $58.32, the lowest price since March 2007. Oil prices are down 60 percent since hitting an all-time high in July. They are also off about one-third from this time last year.
Oil prices fell to less than $62 a barrel Monday 27 October 2008 amid continuing concerns about a global economic recession. U.S. light crude hit a 17-month low at $61.30, while London's Brent crude dipped below $60 a barrel. Oil prices fell even though OPEC (the Organization of Petroleum Exporting Countries) members said last Friday they would cut production by more than five percent (1.5 million barrels per day). OPEC produces about two-fifths of the world's oil.
Oil prices had rebounded on 23 October 2008 as investors anticipate the world's major oil producing nations would announce a production cut. Trading for light sweet crude for December delivery rose to $67 a barrel on the New York Mercantile Exchange in Singapore. The contract fell to $66 a barrel on 22 October 2008, its lowest level in 16 months. In London, the price of Brent crude oil for December rose to nearly $65 a barrel. OPEC President Chakib Khelil has said the ideal price for a barrel of oil would be between $70 and $90 a barrel.
Oil prices closed on 16 October 2008 at a new 14-month low, less than $70 a barrel, less than half its July 2008 record high. Oil prices fell below $100 a barrel, Tuesday 09 September 2008, for the first time since April 2008. The Organization of the Petroleum Exporting Countries agreed to a modest production cut of 500,000 barrels a day, during a meeting in Vienna. In a marathon meeting lasting until early Wednesday, ministers from OPEC's 13 member states agreed to produce a limit of 28.8 million barrels a day.
In the first half of the 2008 oil rose from below $100, in part because of perceptions of tenuous supply in several of the major exporting countries. On Wednesday 02 January 2008 oil prices briefly reached $100 per barrel for the first time. The price of crude oil hit another record high 22 May 2008 of more than $135 a barrel, fueled by worries about supplies and growing demand. This was the second day in a row crude oil prices soared to new highs in trading in New York. The price of crude oil came close to $134 (133.82) the previous day. Oil prices had been buoyed by fears about production shortages around the world. And there are indications those shortages could becomes more severe. The spot price of West Texas Intermediate (WTI) crude oil increased from $122 per barrel on 04 June 2008 to $145 per barrel on July 3 and then to its peak of $147. By August 5, the price fell back to less than $120 per barrel. Since then the price of oil has continued to move back down towards the $100 level. By September 2008 the oil price fell back to below $110. Even some of the more hawkish OPEC leaders are saying that perhaps $100 a barrel is the 'right' price. WTI prices, which averaged $72 per barrel in 2007, were projected to average $119 per barrel in 2008 and $124 per barrel in 2009.
With world supplies dwindling, oil prices were predicted to rise as high as $200 a barrel. The continuing rise of oil prices on the world market is affecting everything from transportation to agriculture and manufacturing. In the United States, some politicians are blaming big oil companies for the problem, but, energy experts say national leaders need to confront the realities of growing demand and limited supply. Demand for oil is being primarily driven by expanding economies in China, India and other developing countries where fuel is needed for factories and transport. At the same time, a growing middle class in those nations is increasing the demand for automobiles, which, in turn, use more fuel. Some energy sector analysts say oil could go as high as $150 or even $200 a barrel in the coming decade, bringing on an age of fuel rationing and a deep economic downturn.
As of August 2008 EIA's assessment was that prospects for improved oil market fundamentals over the next 18 months pointed to an easing in the market balance and price weakness over the near term. The combination of slower U.S. and global oil consumption growth, increased production capacity for crude oil and natural gas liquids in the Organization of the Petroleum Exporting Countries (OPEC) beginning in the third quarter 2008 and continuing through 2009, and higher non-OPEC supply, raises the prospect for a drop in demand for OPEC crude oil and an increase in surplus capacity. Downward price pressures would increase if the economic slowdown proves deeper or longer than expected, and if higher prices lead to lower consumption and lower demand for OPEC crude than currently anticipated. There is also a risk that any weakness in oil prices could be minimal or short-lived, especially if consumption growth exceeds current expectations or if oil production capacity expansion plans in either OPEC or non-OPEC nations turn out to be lower than expected. Supply risks in Iraq, Nigeria, and Iran, as well as threats of hurricanes over the near term, continue to influence market expectations. In addition, OPEC production behavior that would lead to voluntary production cuts aimed at keeping inventories fairly tight would also limit downward price pressure.
The price of oil is of critical importance to today's world economy, given that oil is the largest internationally traded good, both in volume and value terms (creating what some analysts have called a "hydrocarbon economy"). In addition, the prices of energy-intensive goods and services are linked to energy prices, of which oil makes up the single most important share. Finally, the price of oil is linked to some extent to the price of other fuels (even though oil is not fully substitutable for natural gas, coal, and electricity, particularly in the transportation sector). For these reasons, abrupt changes in the price of oil have wide-ranging ramifications for both oil producing and consuming countries.
There is a great deal of uncertainty about the size and availability of crude oil resources, particularly conventional resources, the adequacy of investment capital, and geopolitical trends. This work i a multistep process that began with estimating the amount of oil in place, based on the area's geology, without reference to how much it might cost to remove this oil. The second step is estimating the amount of technically recoverable oil, which takes into account the industry's current state of technology for extracting oil, without accounting for the potential cost to accomplish this.
Finally, analysts overlay the technically-recoverable estimate with an economic analysis -- an estimate of economically recoverable oil. This analysis takes into account the quality and market value of oil, the costs of exploration and drilling, the financial costs of extracting and transporting the oil, and the financial rate of return expected at particular oil prices. The amount of economically recoverable oil resources depends strongly on the long-term market price of oil.
In 1956, geophysicist M. King Hubbert -- then working at the Shell research lab in Houston -- predicted that US oil production would reach its highest level in the early 1970s. Though roundly criticized by oil experts and economists, Hubbert's prediction came true in 1971. The hundred-year period during which most of the world's oil was discovered became known as Hubbert's peak.
Some analysts now believe that a peak in world oil production is now at hand. Eminent oil geologist Kenneth Deffeyes, for instance, predicted in 2001 that global oil production would peak sometime between 2004 and 2008. Pessimists argue that new exploration and production technologies won't help. While long-term solutions exist in the form of conservation and alternative energy sources, pessimists fear that they may not be enacted in time to evade short-term catastrophe.
The Energy Information Administration (EIA) is an independent statistical and analytical agency within the Department of Energy. It is charged with providing objective, timely, and relevant data, analysis, and projections for the use of Congress, the Administration, and the public. It does not take positions on policy issues, but produces data, analysis, and forecasts that are meant to assist policy makers in their energy policy deliberations. Because EIA has an element of statutory independence with respect to the analyses, its views are strictly those of EIA and should not be construed as representing those of the Department of Energy or the Administration. However, EIA's baseline projections on energy trends are widely used by government agencies, the private sector, and academia for their own energy analyses.
The EIA Annual Energy Outlook 2003 predicted business as usual through 2025, with possible peak production in 2037. The European Community in 2001 foresaw no problem through 2025. The CIA in 2002 anticipated a peak in 2025, though this was not widely reported. Although Hubbert's Peak did exibit logistic curve [bell curve] in the US, there is no geophysical or physical reason for production to follow a symetrical logistic curve in declining production. The Annual Energy Outlook 2007, released by the US Energy Information Administration in February 2007, predicted slight declines in total oil production by 2030, contingent on price scenarios and the introduction of non-conventional oil sources.
In 2000 peak production years were estimated by EIA using a relatively simple algorithm. The peak production year estimates ranged from 2021 to 2112 across the 12 scenarios. For example, using the USGS mean (expected) resource base estimate (3,003 billion barrels) and an annual production growth rate of 2 percent (similar to the current rate), the estimated peak production year is 2037.
Since 1973 every upward spike in real oil prices has been followed by a jump in unemployment, or output gap. Some of these jumps seem much larger than can be accounted for by oil prices alone, and there appears not to be a symmetric macro response to downward oil price shocks. But this result is still impressive because most of these oil price shocks have been perceived as temporary. Presumably, the macroeconomic impact would have been even more powerful for price shocks that were perceived as permanent.
EIA's Annual Energy Outlook provides projections and analysis of domestic energy consumption, supply, prices, and energy-related carbon dioxide emissions. World oil prices are defined based on the average refiner acquisition cost of imported oil to the United States (IRAC). The IRAC price tends to be a few dollars less than the widely-cited West Texas Intermediate (WTI) spot price.
In November 1998 the Energy Information Administration released a forecast of World Oil Prices out to the year 2020. At that time, oil prices were some of the lowest since the early 1970's, and that even by 2020 we expect oil prices in real 1997 dollars to reach only $22.73. These projections are from the reference case of the Annual Energy Outlook 1999. The full document, including stand-alone and side cases, was released in mid-December. In current, or nominal, dollars (which include inflation) that $22.73 translates into $43.30 in 2020. All long-term forecasts are stated in terms on constant dollars, to depict trends across time. These prices are imported refiner acquisition costs, rather than West Texas Intermediate. Domestic crude oil production is projected to continue its historic decline throughout the forecast, declining from 6.5 million barrels per day in 1997 to 5.0 million barrels per day in 2020. More than half of the decline is from falling Alaskan crude oil production. Alaska production is expected to decline rapidly--at 4.1 percent annually -- as Prudhoe Bay and most other oil fields decline. The general trend in world oil prices was up, but the EIA thought it most likely at a gradual rate at best. High stock levels worldwide were forecast to restrain prices from moving up sharply, especially if anticipated increases in winter demand fail to materialize.
Annual Energy Outlook 2005 (AEO2005) was based on Federal and State laws and regulations in effect on October 31, 2004. The potential impacts of pending or proposed legislation, regulations, and standards - or of sections of legislation that have been enacted but that require funds or implementing regulations that have not been provided or specified-are not reflected in the projections. AEO2005 was released on the EIA website on February 11, 2005.
In the AEO2005 reference case, the annual average world oil price increase from $27.73 per barrel (2003 dollars) in 2003 ($4.64 per million Btu) to $35.00 per barrel in 2004 ($5.86 per million Btu) and then decline to $25.00 per barrel in 2010 ($4.18 per million Btu) as new supplies enter the market. It then rises slowly to $30.31 per barrel in 2025 ($5.07 per million Btu). As recently as April 13, 2005 Guy F. Caruso, Administrator of the Energy Information Administration, was briefing these results.
But The EIA's Short-Term Energy Outlook - April 2005, released 07 April 2005, told a very different story. During the first quarter of 2005, West Texas Intermediate (WTI) crude oil near-month contract futures prices averaged $49.77 per barrel, rising nearly $14 per barrel over the 3-month period. Higher crude oil prices over this period reflected, in part, market expectations of robust world demand, limited increases in non-Organization of Petroleum Exporting Countries (OPEC) production, and uncertainty about crude oil supplies from continuing volatile situations in Iraq, Nigeria, and Venezuela. Traders and oil market analysts seemed focused on the latter part of 2005, projecting continued strong demand growth with very little spare production capacity available.
The average West Texas Intermediate (WTI) crude oil price for the first quarter of 2005 was $49.77 per barrel, approximately $14.50 per barrel higher than in the first quarter of 2004 and $1.10 per barrel above the first quarter 2005 projection in the previous Outlook. WTI prices were projected to remain above $50 per barrel for the rest of 2005 and 2006. Oil prices are likely to be sensitive to any incremental oil market tightness. Imbalances (real or perceived) in light product markets could cause light crude oil prices to increase to levels above the $55 per barrel average projected in the Outlook.
Several factors contributed to the high crude oil prices. First, worldwide petroleum demand growth is projected to remain robust, despite high oil prices, but is likely to moderate in response to slower Chinese growth, which exceeded 1 million barrels per day in 2004. Projections for 2005 and 2006 called for worldwide growth averaging 2.2 million barrels per day, or 2.6 percent, per year, down from the 3.4-percent growth in 2004. Chinese demand growth is projected to moderate to an average of 650 thousand barrels per day annually in 2005 and 2006.
Second, expected growth in non-Organization of Petroleum Exporting Countries (OPEC) supplies was not expected to accommodate worldwide demand growth. Third, worldwide spare crude oil production capacity has recently diminished and is projected to remain low. Fourth, freight rates, although down from those in 2004, are projected to remain high in historical terms. Finally, geo-political risks, such as the continued insurgency in Iraq and political unrest in Nigeria and Venezuela, were expected to keep the uncertainty premium high. EIA's assessment of the outlook through the balance of 2005 expected markets to remain relatively tight.
The EIA's "International Energy Outlook 2005" was released in July 2005. It projected that, from anticipated high levels throughout 2005, world oil prices decline gradually through 2010 to $31 per barrel (in 2003 dollars). World oil prices rose by more than $9 per barrel (in nominal dollars) over the course of 2004 and were expected to add an additional $11 per barrel in 2005, brought about by tight oil market conditions that include low inventory levels, surging demand in emerging Asia, and the situation in Iraq; however, such developments are not indicative of the long-term trend in the IEO2005 reference case.
On 09 August 2005, New York's main contract, light sweet crude for delivery in September 2005, climbed 54 cents to $63.61 per barrel in electronic trading. The contract had struck $64.27 late on 08 August 2005, the highest level since it was first traded in 1983. In contrast to most other oil-price-spike episodes, this time the far futures price of oil -- that is, the price for contracts seven years out -- had also risen sharply. This correlation seemed to indicate that the oil price increase was not viewed as a purely temporary shock.
Crude oil prices increased dramatically during 2007, with West Texas Intermediate (WTI) prices climbing from an average of nearly $55 per barrel in January 2007 to over $95 per barrel in early November 2007. A variety of supply and demand fundamentals, including strong world economic growth driving growth in oil use, moderate non-Organization of the Petroleum Exporting Countries (OPEC) supply growth, OPEC members' production decisions, low OPEC spare production capacity, tightness in global commercial inventories, worldwide refining bottlenecks, and ongoing geopolitical risks and concerns about supply availability, have been drivers in oil price movements over the year. The decline in the value of the dollar against other currencies supports continued oil consumption growth in foreign countries because oil is traded globally in dollars, and a declining dollar has made the increase in oil prices less severe in foreign currencies.
The US Energy Information Administration Short-Term Energy Outlook released on 06 November 2007 predicted that the price of oil imported into the United States would peak at $83.25 per barrel in November 2007, and decline to $69 per barrel by the end of 2008. The Annual Energy Outlook 2007, released by the US Energy Information Administration in February 2007, predicted that crude oil prices would fall to less than $50 per barrel [in constant 2005 dollars] by 2013, before nearly $60 per barrel [in constant 2005 dollars] by the year 2030.
High oil prices defer concerns about oil supply, and thus the major concerns relating to geopolitical competition for oil imports. High prices diminish concerns scenarios of Chinese and Western strategic competition for sources of oil imports. High oil prices enable increases in non-OPEC production capacity, mainly from ultra-deep (greater than 1,400 m deep) underwater exploration in the North Sea, the Caspian Sea, the Gulf of Guinea, and the Gulf of Mexico.
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