US Crude Oil Production: Facts and Implications

New data from the United States Energy Information Administration (EIA) reveals not only that rising domestic oil production in the US puts that economy in a good position to trade to advantage on the world’s energy markets, but also that it is shifting towards non-energy uses of hydrocarbons.The United States government’s Energy Information Administration (EIA) published its latest Short-Term Energy Outlook on the 9^th of January. The most salient feature of the report, already noted by the UK press, is that US territorial oil production is now very high by historical standards and expected to rise still further. The EIA itself writes:U.S. crude oil production averaged an estimated 9.3 million barrels per day (b/d) in 2017 and is estimated to have averaged 9.9 million b/d in December. U.S. crude oil production is forecast to average 10.3 million b/d in 2018, which would mark the highest annual average production in U.S. history, surpassing the previous record of 9.6 million b/d set in 1970. EIA forecasts production to increase to an average of 10.8 million b/d in 2019 and to surpass 11 million b/d in November 2019.To put that in context, total US consumption of petroleum and other liquid fuels was approximately 19.84 million barrels per day in 2017, of which motor gasoline use amounted to about 9.3 million barrels per day. Thus, even by its own consumption standards, the US is producing a lot of oil, and the trend appears to be upwards, as can be seen from the following EIA chart:Figure 1: United States Crude Oil Production, empirical 1997–2017, projected, 2018–2019. Source: U.S. EIA.It is easy to overstate and overrate the benefits of self-sufficiency in energy (though of course in troubled geopolitical circumstances there are undoubted advantages), and the real value for the US is that this robust domestic output puts their economy in a strong position to trade with advantage on the international energy markets, picking and choosing to get the best deals.Against this background, and bearing in mind that GDP rose by 2.3% in 2017 and is expected to rise by 2.4% in 2018, it is quite unsurprising that US consumption of petroleum and other liquid fuels is also expected to rise. However, this rise is not caused principally by an increase in the use of petroleum and other liquids for road transportation, though the EIA does in fact anticipate that consumption will reach a record annual level in 2018, and will do so in spite of a slight increase in price, the fundamental driving force being that growth in disposable income and falling unemployment are encouraging an increase in miles travelled. Nor will it be caused by growth in aviation use, though that too will increase in 2018 by 1.4% (some 20,000 barrels per day) to just over 1.7 million barrels per day. Interesting though steady growth in transport use is, the major growth in this area will be in Hydrocarbon Gas Liquids (HGL):EIA forecasts HGL consumption growth to be the strongest among the liquid fuels. HGL consumption is expected to increase by 300,000 b/d (11.7%) in 2018 and by 260,000 b/d (9.1%) in 2019, with increased ethane consumption accounting for about three quarters of this growth. Seven (six new and one restarted) ethylene-producing petrochemical plants that use ethane as their feedstock are planned to begin operating in the United States by the end of 2019. In other words, the fastest growing area in the use of hydrocarbons within the US is as an industrial feedstock. That is news.What do we learn from all this? That God went to the Super Bowl, listened, and really has Blessed America? Yes, yes, that of course, but also and by implication, that the European-led style of climate policy by economic self-denial is idiosyncratic and uncompelling. The US trend, as the chart shows, started long before Mr Trump’s election, and reflects physical realities and the economic preferences of the American people, rather than the evanescent policies of any particular administration. That sort of trend, and its underlying causes, sends an unmistakeable message to the developing world. It’s a language that speaks to their own possibilities and needs.All that is very important, but, even so, the most arresting point emerging from EIA’s statistics is that the US economy is beginning to show signs of moving towards a situation where the use of hydrocarbons for energy could cease to be the overwhelmingly dominant use. Reasoning from thermodynamic principles, this blog commented in May 2016 on the possibility of such an outcome, “Divestment and the Future Uses of Oil, Gas and Coal”.

It seems reasonable, then, to conclude that even if oil and gas cease to be of interest to the energy markets, and that seems to be a fair way off, certainly over the hill and out of sight, they are all but certain to become more desirable as feedstocks for the chemicals industry, in other words the complexity facilitated by that already present in a hydrocarbon will steadily come to seem more valuable than the complexity we are able to create with the energy contained in its bonds. There is a risk, of course, in driving fossil fuels from the market prematurely on environmental grounds, that this transition will not be as smooth as it otherwise would be.

The United States is very far from driving fossil fuels from its markets and seems to be reaping the benefits. European leaders would do well to reflect on this.