In proponents of a quick switch by the US to carbon-free forms of energy, new data on recent and future oil and gas supply might induce squirming. Reality will do that.
December, reported the American Petroleum Institute, was “a remarkable month.” Average production of crude oil set a monthly record at 11.7 million b/d. Production of NGL set a record at 4.8 million b/d. Exports of crude oil tied November’s record level of 2.4 million b/d. For all of 2018, US output of liquid fuels increased by 2.1 million b/d—“the greatest addition to supply that the world has ever seen in a single year,” said API Chief Economist Dean Forman.
More in prospect
According to the US Energy Information Administration’s Annual Energy Outlook, more is in prospect. In the reference case, US crude production sets annual records through 2027 and remains above 14 million b/d through 2040. Production of what EIA calls natural gas plant liquids reaches 6 million b/d by 2029. Gas production grows by 7%/year through 2020 and by 1%/year afterward. Combined with slower growth in energy consumption, the new supply of crude oil, gas, and gas liquids and expected trade in coal make the US a net exporter of energy in 2020.
For a country with energy policies predicated for three decades on assumptions of energy shortage and anxiety about reliance on imported oil, reversal of the US position in energy trade is a dazzling achievement. And for pressure groups opposed to new supply and use of fossil energy, it’s calamitous. They know the huge potential of shales and other low-permeability reservoirs, made accessible by technology and knowledge about the subsurface, means the Age of Petroleum will not soon end for reasons of geology. With natural limitation of oil and gas supply diminishingly compelling to policy-making, they now demand that fluid hydrocarbons be left in the ground to abate warming of the atmosphere. And they treat energy decisions as political contests between interests of “the people” and those of nefarious corporations.
Their perspective is blinding. Oil-company executives did not don yellow jackets and march in French cities to protest energy costs raised by a government determined to show leadership in the mitigation of climate change. People hurt by zealous governance did that. More people will be hurt to whatever extent governments decide to foreswear affordable energy in favor of costly alternatives. And more political turmoil can be expected.
Oil and gas companies of course have interests to protect against attacks against their abilities to conduct business. But energy consumers have parallel interests just as strong. To portray energy policy-making as a clash between corporate and individual interests overlooks much—nearly everything, in fact.
Companies and consumers are not the only constituencies hurt when governments yield to keep-it-in-the-ground activism. Governments hurt themselves by crimping income from resource development if they’re lucky enough to have it.
API estimates the US government receives $70 million/day in taxes, royalties, and rents paid by the oil and gas industry. Against a $4 trillion federal budget, that’s not much. But over a year, it’s nearly enough to cover 2018 spending of, say, the Department of the Interior. And the total doesn’t account for the incomes, ancillary commerce, and related payments to federal, state, and local governments associated with oil and gas work.
Political reality
If EIA’s projections hold true, economic and fiscal benefits to the US from resource development will grow. If, however, the government enacts policies that discourage oil and gas work, as it persistently tried to do during the administration of Barack Obama, the economy will suffer, government revenue from resource development will fall, and pressure will grow for compensation via tax-rate hikes on individuals and businesses. Political prospects of the latter scenario are not favorable.
Taxpayers dislike rate hikes as much as consumers dislike energy-price increases—especially those imposed by policy. This, too, is simple reality. It’s enough to make an activist squirm.
