Don’t Bet Against U.S. Natural Gas and Oil
Posted March 17, 2020
Much of the news surrounding the U.S. natural gas and oil industry is fairly challenging right now:
- Some of the lowest global crude oil prices in years
- World energy demand, which already was slowing, has been further affected by the coronavirus.
- Russia and Saudi Arabia, the world’s No. 2 and No. 3 oil producers, plan to increase output, launching a price war that also might be aimed at clawing back market share lost to U.S. shale producers in recent years.
Even so, don’t bet against the U.S. natural gas and oil industry. Ours is an industry of innovation and technological expertise that historically has risen to overcome serious circumstances, playing a key role in building U.S. economic strength and increasing the nation’s global security.
In that context, industry seeks a level playing field, where global markets function properly. That’s why API isn’t seeking loans, tariffs or other kinds of government policy relief that ultimately could harm U.S. consumers. As API Chief Economist Dean Foreman writes in this blog, our trade association free-market principles and competitive market outcomes. API President and CEO Mike Sommers to CNBC:
“We’re focused on making sure the free market works, not on some government intervention that would be outside the market.”
Instead, the administration should reiterate U.S. policy objectives, including economic and energy security, encourage members of OPEC+ to resolve their own differences and explore ways to focus U.S. diplomacy on persuading Russia and Saudi Arabia to alter production policies that largely appear aimed at U.S. natural gas and oil.
More on Russia and Saudi Arabia later in this post. First, we’ll mention the administration’s plan to buy crude oil for the Strategic Petroleum Reserve (SPR), ostensibly to help domestic oil producers hit by current market conditions.
While within the president’s authority granted by Congress, the SPR action should be seen in a global context. Writing for Forbes, Scott Carpenter notes that the 78 million barrels needed for the SPR to reach its capacity of 713.5 million barrels is a fraction of the 4 million barrels a day of oversupply now confronting global markets. Hence, API’s view that the focus of policymakers should be on working markets and what the Russians and Saudis are doing. Sommers in the CNBC interview:
“What we have here is a demand shock, of course, because of coronavirus, and a supply shock, because of the decision by Russia and the Saudis to flood the market with oil. … So, we are concerned about these geopolitical factors that are feeding into some downturn within the industry ... right now, we trying to make sure policymakers are responding in the right way. But, ultimately, the solution here is to work in a diplomatic way to make sure oil markets are well-balanced.”
So what about Russia and Saudi Arabia increasing production given current market conditions? API’s Foreman calls it a serious challenge to the domestic industry, which thanks to hydraulic fracturing and ample shale reserves has made the U.S. the world’s leading producer of natural gas and oil. Writing in The Hill, Bernard Weinstein, associate director of the Maguire Energy Institute and adjunct professor at SMU's Cox School of Business, asserts that the Russians believe an extended period of oil priced at $30 per barrel offers a chance to undermine U.S. shale production. Weinstein says the U.S. industry’s advantages in technology, innovation and adaptability will see it through the current situation. Weinstein:
“[W]e have leaner and more efficient operators in America’s shale plays, especially the Permian Basin in West Texas and the Marcellus in the Northeast. Indeed, we’re producing record levels of oil and natural gas with 50 percent fewer rigs than a decade ago. … Also, on the plus side, big oil companies will continue to invest during the down cycle, especially those with long-term projects such as deep-water drilling in the Gulf of Mexico where the payout period is typically decades instead of a few years. Yes, there will be pain in America’s oil patch this year … But if the past is prologue, the oil and gas industry will emerge stronger than ever.”
About The Author
Mark Green joined API after a career in newspaper journalism, including 16 years as national editorial writer for The Oklahoman in the paper’s Washington bureau. Previously, Mark was a reporter, copy editor and sports editor at an assortment of newspapers. He earned his journalism degree from the University of Oklahoma and master’s in journalism and public affairs from American University. He and his wife Pamela have two grown children and five grandchildren.
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