Alex Mills
By Alex Mills
Many news stories have surfaced about the increase in oil and natural gas production in the U.S., the resulting decline in price, and the fallout that comes with such a dramatic drop in oil prices.
I have received calls from reporters with newspapers in Texas and beyond, oil and gas trade press, and even a call from a producer with the national television news magazine “60 Minutes.”
Because oil and gas is such a hot news topic in so many different areas, I thought I would touch briefly on some of the stories that were in the news last week.
First, the U.S. House passed the Senate version of the Keystone XL pipeline and it now goes to President Obama for his signature or veto. Look for Congress to pass more energy legislation soon dealing with removing the ban on crude oil exports and expediting permits for LNG terminals.
Next, experts who make their living predicting crude oil futures price disagree about where is the bottom and how long it will take for oil prices to rebound. Crude oil futures for March delivery on the NYMEX ended $1.18, or 2.4 percent, lower on Feb. 11 to settle at $48.84 per barrel, falling for the second day in a row after the weekly EIA inventory report showed stockpiles reached a new record high.
Oil prices have shown signs of stability in the past two weeks after plunging to nearly six-year lows last month amid a global supply glut. US crude stockpiles rose by a slightly bigger-than-expected 4.9 million barrels to 417.9 million barrels last week, according to the EIA. The amount of oil stored by refiners, traders and other companies stands at the highest level in about 80 years, according to EIA data. Many analysts expect supplies to continue rising in the coming weeks as refineries process less crude. Many plants shut down units in the spring to perform seasonal repairs ahead of the summer-driving season, when demand for fuels such as gasoline increases.
Domestic oil production rose by 49,000 barrels per day (bpd) to 9.2 million bpd in the week, the EIA said.
The U.S. drilling rig count declined for the ninth consecutive week to 1,140.
The increase in U.S. shale and tight crude oil production has resulted in a decrease of crude oil imports to the U.S. Gulf Coast area, particularly for light-sweet and light-sour crude oils. Historically, Gulf Coast refineries have imported as much as 1.3 million bpd of light-sweet crude oil, more than any other region of the country. Beginning in 2010, improvements to the crude distribution system and sustained increases in production in the Permian Basin of West Texas and the Eagle Ford of South Texas have significantly reduced light crude imports. Since September 2012, imports of light-sweet crude oil to the Gulf Coast have regularly been less than 200,000 bpd. Similarly, Gulf Coast imports of light crude with higher sulfur content (described as light-sour) have declined and have been less than 200,000 bpd since July 2013.
The U.S. had the largest gain in oil production in 2014. The EIA reported that oil production increased 1.59 million barrels per day last year, which was followed by Iraq with an increase of 330,000 barrels per day. Iraq’s production now averages about 3.4 million barrels per day.
And, finally, questions arise about oil-giant Saudi Arabia, the world’s largest oil exporter. Do low oil prices hurt Saudi Arabia? How long can they withstand lower oil prices? How dependent is Saudi Arabia on revenue from oil exports?
EIA acknowledged that oil exports account for 89 percent of Saudi Arabia’s total revenue in 2014. The recent decline in oil prices has resulted on reduced revenue. Saudi Arabia recently issued its 2015 budget of $230 billion that has a projected deficit of $39 billion. Even though they are projecting a budget deficit, Saudi Arabia has a massive Sovereign Wealth Fund (SWF) of $733 billion that can be used to offset the budget deficit.
“Consequently, the short-term effect of lower oil prices on Saudi Arabia should be minimal,” EIA stated.
Alex Mills is President of the Texas Alliance of Energy Producers. The opinions expressed are solely of the author.
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