U.S. Oil and Gas Building National Security

The good news - Lower Costs, Shale Growth Restrict Oil Price in Long Termfrom FItch Ratings:

Lower global production costs, considerable U.S. shale growth potential and shale's ability to quickly respond to changing market conditions should keep average annual oil prices below USD60 a barrel in the long term, Fitch Ratings says. But oil prices will remain volatile and could periodically exceed our assumptions.
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We remain sceptical about the effectiveness of OPEC's production cuts to rebalance supply and demand in the near term, as well as to materially reduce crude stocks given the exclusion of Libya and Nigeria (both producing at higher levels since the cut), weak enforceability, and poor track records of adherence. OPEC's average compliance rate slipped to 75% in July from almost 100% at the beginning of the year, according to the International Energy Agency. It improved to 82% in August, but overall we expect average compliance rates in 2H17 and beyond to be weaker than in 1H17.

So relatively low fuel prices should continue, keeping more money into the U.S. economy.

But more good news from the Oil and Gas Journal of Oct 9, 2017, reporting on remarks by Interior Secretary Zinke commenting on efforts to help U.S. oil and gas producers:

“Regulations should be ground in science—not a political agenda,” the secretary indicated. “This is why we’re reviewing and possibly revoking rules that are overly punitive. We’re trying to find the quickest way to get to ‘yes’ without sacrificing our environmental and other responsibilities. With our joint model, we’ll make sure that agencies from many parts of the federal government can work together and involve states, tribes, and other stakeholders earlier in the process.”

Zinke said that more federal oil and gas resource development will improve US security and provide more jobs and economic growth. “I don’t want to see our country held hostage by a foreign oil producer or US troops sent into combat to protect supply routes,” he maintained. “Every drop of US oil that’s produced supplants one from Iran. That’s effective leverage.”

There is an interesting issue that lurks behind efforts to reduce or ban the use of petroleum powered vehicles- well posed by BOb Tippee of the Oil and Gas Journal:


The greenest means of efficient and large elecrical power generation is nuclear, not wind or geothermal or solar or water current.

See Electric Cars Are Not Necessarily Clean: Your battery-powered vehicle is only as green as your electricity supplier and Electric car growth sparks environmental concerns: Mining of raw materials and recycling of lithium-ion batteries in spotlight.

Of course, if the goal is reducing CO2, I guess other types of environmental concerns melt away.

Energy: "New Gas Extraction Methods Alter Global Balance of Power"

Yes, this is another post on the importance of U.S. shale gas. For those of you unfamiliar with shale gas, a good source of information is at the U.S. Energy Information Administration's "What is shale gas and why is it important?":

Of the natural gas consumed in the United States in 2011, about 95% was produced domestically; thus, the supply of natural gas is not as dependent on foreign producers as is the supply of crude oil, and the delivery system is less subject to interruption. The availability of large quantities of shale gas should enable the United States to consume a predominantly domestic supply of gas for many years and produce more natural gas than it consumes.

So what, you might ask? Well, there are huge national and international security issues involved, as set out a couple of month's ago in Der Spiegel, "New Gas Extraction Methods Alter Global Balance of Power":

The gas revolution is changing the political balance of power all over the world. Americans and Russians have waged wars, and they have propped up or toppled regimes, over oil and gas. When the flows of energy change, the strategic and military calculations of the major powers do as well.

It is still unclear who the winners and losers will be. The Chinese and the Argentines also have enormous shale gas reserves. Experts believe that Poland, France and Germany have significant resources, although no one knows exactly how significant. Outside the United States, extraction is still in its infancy.

The outlines of a changed world order are already emerging in the simulations of geo-strategists. They show that the United States will benefit the most from the development of shale gas and oil resources. A study by Germany's foreign intelligence agency, the BND, concludes that Washington's discretionary power in foreign and security policy will increase substantially as a result of the country's new energy riches.
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According to the BND study, the political threat potential of oil producers like Iran will decline. Optimists assume that, in about 15 years, the United States will no longer have to send any aircraft carriers to the Persian Gulf to guarantee that oil tankers can pass unhindered through the Strait of Hormuz, still the most important energy bottleneck in the world.

The Russians could be on the losing end of the stick. The power of President Vladimir Putin is based primarily on oil and gas revenues. If energy prices decline in the long term, bringing down Russian revenues from the energy sector, Putin's grip on power could begin to falter. The Americans' sudden oil and gas riches are also not very good news for authoritarian regimes in the Middle East.

European industry is also likely to benefit from falling world market prices for oil and gas. But according to prognoses, without domestic extraction the Europeans' site-specific advantages deteriorate.(emphasis added)

See also Rice University's Baker Institute publication "Shale Gas and U.S. National Security" . Back in August 2011, we had a discussion on Midrats with Amy Myers Jaffe (my referring blog post was Sunday on Midrats: Gas Shale and National Security), the show is Episode 83) we finally got Ms. Jaffe online at about 31:24 into the show):

Listen to internet radio with Midrats on Blog Talk Radio

Now, who benefits from open sea lanes on which the U.S. could export LNG? Why just about everyone! Except, of course, for the Russians and the Middle East maybe. Who keeps those sea lanes open? The U.S. Navy. Who should we lend a hand to in exploring their potential for shale gas? Poland, Germany, France? China? Argentina? Australia? What about Japan? It stands to benefit from an open sea lane to receive LNG (liquified natural gas) from the U.S. and other places. See Issues Facing U.S. Shale Gas Exports To Japan.
Hat tip for Der Spiegel article: NavalHistWarStudies

National Energy Security: Coming "Golden Energy Era"

Oil and Gas Journal reports "US on brink of strong oil, gas growth, Senate panel told":

“We believe that by 2020, the United States will become the largest producer of hydrocarbons in the world, surpassing Russia,” said Roger Diwan, partner and head of financial advisory operations at PFC Energy. Now that producers have solved the problem of producing oil and gas from tight shale formations, the nation is on the verge of a golden energy era which is reshaping the industry worldwide, he maintained.
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The scale of the opportunity to increase US oil production is greater than in most other countries over the next decade, noted James Burkhard, managing director of IHS CERA Inc.’s global oil group.
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Howard K. Gruenspecht, acting administrator at the US Energy Information Administration, said the US Department of Energy’s independent forecasting and analysis agency’s initial 2012 Annual Energy Outlook (AEO) reference case forecasts 20% growth in US crude production over the next decade. Net petroleum imports are expected to drop from 49% of total US consumption in 2010 to 38% in 2020 and 36% in 2035 as a result, he said.

So, less reliance on foreign producers, brought to you by the petroleum industry. You know this is much better for national security and our maritime energy security. And, as a bonus, it buys time for all those expensive bio-fuels projects to be perfected . . .