Tag Archives: American oil exports

The Energy Quotient

The old saw has it that “money makes the world go ‘round”. But in the post- industrial world it must be said to be energy. It could be argued that the two are synonymous. But that, too, isn’t true.

Take the recent arrival in Israel of a Dutch-Swiss trading company’s sweet oil cargo from the U.S. The shipment not only marked the first overseas shipment since the U.S. lifted its embargo on oil exports, but had enormous geopolitical implications. With the U.S. Shale Revolution smashing gas and petroleum prices generally around the world, the fallout has been vast and much of it still unpredictable.

There is, of course, the possibility that the U.S. will again resume its position as one of the world market’s major source of oil exports after a half century dominated by the Persian Gulf producers and their incredibly low crude costs. That would satisfy that old political battle cry for U.S. energy “independence”. The boom in the Mideast has led to the pile-up of petrodollars in the region beyond its technical and intellectual capacity to invest wisely, not the tax on world economies which former Secretary of Treasury William Simon once rationalized and dismissed as Persian Gulf producers came to dominate the market.

At the moment, the Saudis – despite an attempt to get major producers to limit production – is pumping madly in an attempt to cripple the higher cost American shale producers and to retain market share. So far that’s been met largely by additional technological innovation by the shale producers. More and more oil is coming on market, even some of it from noncompetitive smaller producers induced by political considerations. And with the lifting of sanctions, the mullahs in Tehran are hoping to get back into the fray as a once major exporter.

The arrival of American oil gives the Israelis one more element in what was once considered their most dangerous vulnerability, the lack of energy. It also adds one more link to the U.S.-Israeli alliance. It will enhance Prime Minister Benjamin Netanyahu’s battle against the state capitalists on both the Israeli left and right who want to forbid exports of their newfound huge gas deposits in the Eastern Mediterranean. Netanyahu needs those exports for political reasons, not the least to bolster the wavering relationship with Turkey. The Turks, once Israel’s only economic and military ally in the region, have drifted off under Pres. Recep Tayipp Erdogan flirtation with the Islamicists. But Israeli gas shipments through energy-deficit Turkey, along with transshipment of Central Asian oil and gas, to Europe is one of Ankara’s principal and critical politico-economic goals.

The American tie-up will also strengthen Israel’s hand in its efforts to coordinate recent massive discoveries of gas off Egypt by the Italian government company and Cyprus offshore gas. Even before these latest finds, a 2010 US Geological Survey report estimated that there were 122 trillion cubic feet of gas and 1.7bn barrels of oil off the coasts of Israel and the Gaza Strip, Cyprus, Syria and Lebanon. [The U.S. consumes about 25 million cubic feet of gas annually.] The most recent additions to these massive reserves offer the Europeans an alternative to the high-cost Russian gas imports which have been the heart Moscow’s economy, now jeopardized sanctions imposed as a result of Vladimir Putin’s aggression in Ukraine and Syria and threats to the Baltic states.

With domestic gas, access to neighbor’s reserves, and now the new American tie, Israel’s economy and its worldwide stature is rising rapidly despite the insoluble Palestinian problem and the current wave of individual knifing violence. The Israeli arms industry and its exports, for example, are taking on great significance. [Israel and India have just initialed a new $2 billion New Delhi purchase.]

The irony, of course, in this is taking place despite the Obama Administration, for the most part covertly, to loosen Washington ties to the Israelis, America’s most dependable ally in the Middle East. That, too, may change in January 2017.






The energy revolution [cont.]

“You and me we sweat and slave, but that old man energy just keeps rolling along”. Good news to sing about!

In one of that witches ’ brew that come out of the Congress and are called “compromise”, a bill seems to be working its way through the toils of the legislative process to end the four-decades-old ban on oil exports. In exchange, the Republicans and oil companies have agreed to put more money into the so-called green energy subsidies.

It’s not the best of solutions. But the possibility of shoving the growing gas and oil surpluses in the U.S. – a product of the Shale Revolution – on the world market argues well for the American economy. We hope it makes it.

The ban on exports – proving again when a law gets into place it is hard to dislodge even in the face of revolutionary changing conditions – dates back to the 70s. That’s when our growing imports were hit by the price-fixing Persian Gulf and others’ monopoly, the Organization of Petroleum Exporting Countries [OPEC]. But OPEC, despite recent huffing and puffing, has been dying on the vine, or rather swamped by the world energy glut.

The leading OPEC producers are now pumping violently, even though it is tearing the world energy price to shreds, in order to garner more market share. They obviously see the possibility of the Americans reentering the market, particularly in Western Europe. The Saudis, particularly, see their once catbird seat as the arbiter of world oil pricing dissolving in the American technology which has opened up enormous new possibilities in gas and oil in shale deposits worldwide once beyond the bit of the drills. [Don’t look now but that may also affect how the rest of the world views the Saudis’ sponsorship of reactionary Islamic religio-political movements.]

The U.S. production boom in Texas and the Dakotas and Montana, is cranking out more than one million barrels of crude a day. Current law does permit the export of half a million barrels a day from Alaska to Asian customers and exchanges with Canada. And as the largest consumer in the world, the U.S. even during an economic downturn is burning 19 million barrels a day according to the U.S. Energy Information Administration.

So far, at least, although the Saudis have oil that can be produced at a few cents a barrel, their gushers have not totally crippled the American shale producers. Good old American technological innovation continues to make leaps in shale productivity – and moderate world demand in a period of economic “malaise” – has so far saved a good part of the new industry.

Still, the glut causing low prices is keeping a lot of rigs from pumping full blast. Luckily for all concerned, the new crudes are mostly light, not the kind of heavy oil the huge Texas refineries were geared to handle from older U.S. fields and Caribbean imports but are welcomed by foreign refineries. The lifting of the export ban would produce an immediate spurt in jobs for the oil transportation systems and suppliers of their equipment needed for the new export capacity. The Aspen Institute says that means adding 630,000 new jobs and an additional $165 billion annually to the Gross Domestic Product for the next six years.

Hopefully, this deal is not going to get sidetracked as the Congress winds down for the holidays.

Not everyone is happy about the new developments, of course. Some investors in oil stocks are holding their heads. But we have always argued that cheap energy is the soul of American economic progress and development and that hasn’t changed, even if some of the players have. [Electricity producers are turning from coal to gas, or combinations of natural gas and coal gas – switches that probably are still in their infancy and too early to judge. But the gains in trimming emissions are already obvious.]

So bring on the oil – and gas [liquidifed natural gas] – exports!