Is the U.S. on Track to Join OPEC?
A Changing U.S. Energy Picture
This weekend, Thomas Friedman posed a question in his Sunday New York Times column: “Should the US join OPEC?” I generally don’t like to get into Friedman’s columns, as his name-dropping and taxicab reporting will drive you crazy. However, he probably has the widest readership of anyone in this field, and he does a good job of simplifying complicated issues.
Friedman says the “debate we’re again having over who is responsible for higher oil prices fundamentally misses huge changes that have taken place in America’s energy output, making us again a major oil and gas producer — and potential exporter — with an interest in reasonably high but stable oil prices.”
I hate to say it, but he’s right – although we’re nowhere near being a petroleum exporter today (a clear requirement for membership in the Organization of Petroleum Exporting Countries), I believe that fundamental changes in America’s supply and demand over the next 20-30 years mean that we’re moving towards a world where the U.S. has a real interest in exports – probably not of unrefined crude oil, but of all energy products.
The proof is in the numbers and the trends: America imports around 9 million barrels of crude per day, a level that has stayed mostly steady since the ’08 financial crisis – well below our peak of 10.6 mbd in the summer of ’06 (all numbers here are EIA). However, since July of 2011 America has become a major net exporter of refined petroleum products, to a peak of 1.1 mbd just this past week. Combine this with the shale oil boom in onshore oil production, and the potential for more deepwater finds in the future, and you have a very different oil supply than we saw in the last decade.
From Consumer-Oriented to Producer-Oriented Energy Policy
Fundamental changes in American demand for oil mean that we have passed ‘peak oil demand’ in the U.S. Last year’s deal between the Automakers and the Administration to more than double auto fuel economy standards to 55 MPG, a move from trucking freight to freight rail, as well as structural changes in the U.S. economy that make it more efficient add up to an economy that doesn’t need as much oil.
Again, the proof is in the numbers: In February of 2007, U.S. oil use peaked at 21.8 mbd. Today, only five years later, U.S. oil use is 18.2 mbd – 17% less. Even though the period in between suffered a severe recession, our real GDP is 2.8% bigger today than it was then. We’re producing more wealth with less oil – that’s a victory.
So – if you combine an upwardly moving supply curve and a demand curve that seems to have bent inexorably downward, I think there is a good case that the U.S. is moving towards an economy that is a net exporter of oil products; not tomorrow, and not next year – but maybe in a decade.
This explanation has not even gotten into the current and potential exports in coal and natural gas that could really move the U.S. back into the position that it held until the 1960s as an energy superpower. In the realm of complete unknowns, we may also see manufactured alternative energy products like wind turbines, nuclear power plants, or solar panels become a major export as well.
The U.S. is on track to become a major exporter of energy, and that will change the political and business calculus of what policies to pursue. In the next essay, I delve further into what the implications are of a shift from a consumer-oriented energy policy to a producer-oriented energy-policy. The changes may not be easy for American consumers, but I believe that over the long-term, this is a positive for the American economy.
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