API Report: Stronger Economy, More Security Thanks to Energy

Dean Foreman
Posted June 20, 2019

API’s latest Monthly Statistical Report (MSR) underscores just how much recent oil production growth exceeded the pace of record U.S. domestic needs and crude oil exports, resulting in higher inventories. This production and cushion for the market have kept oil and fuel prices low, and all these factors have contributed to a stronger economy with greater U.S. energy security.

Along with the separate Industry Outlook presentation, covering energy market developments for the second quarter of 2019, we see U.S. oil and natural gas output continuing to set records, helped by low breakeven prices and productivity that underpin the longevity of the domestic energy revolution – as we discussed here. 

Data contained in the MSR suggest great possibilities, but only if we have infrastructure to connect the developments with markets – and it is happening.  Look at the two charts below:

The alleviation of infrastructure bottlenecks in the Permian basin is especially notable. New pipeline capacity additions – 1.5 million barrels per day (mb/d) for oil (Chart 1) and 5 billion cubic feet per day (bcf/d) for natural gas (Chart 2) – should come on stream by the end of this year. We see evidence with some of it already starting, and the U.S. Energy Information Administration (EIA) reported in June that the backlog of drilled but uncompleted wells (DUCs) eased in April.

As the new production growth seeks markets, our attention shifts toward U.S. export capacity and trade relationships. In the Industry Outlook, we highlight uncertainty that exists over exactly how much crude oil the United States physically can export. Estimates range from 4 mb/d to 5 mb/d, depending on assumptions about shipping congestion and other market factors. But if the EIA proves correct that total U.S. crude oil production could grow by another 0.8 mb/d by the end of 2019, we are likely to push against the lower bound of U.S. crude oil export capacity. This creates urgency to plan ahead for the infrastructure and logistics needed to enable export growth.

Another important development is how the energy revolution has enabled a renaissance in U.S. manufacturing. The building blocks for many plastics begin as ethane and propane that are co-produced along with natural gas in many regions.

There are economic decisions involved whether to extract ethane, propane and other natural gas liquids from natural gas after it is produced, but a key change this past year has been how relatively inexpensive ethane has made the production of ethylene and products derived from it economically viable, even as global market prices that usually track with those of oil have fallen.  

This fundamentally empowers U.S. competitiveness, energy and economic security – and ultimately the quality of jobs, wages and opportunities for communities from Pittsburgh and Peoria to Lake Charles and even Los Angeles.

The connection between energy and opportunity is something that can be easily be taken for granted, and these recent market developments serve as reminders that we cannot be complacent.