Wow! Just how off the mark can PAUL FEELEY be?
Back to the basics, PAUL FEELEY.
In February 2021, OPEC voted to cut combined crude oil production by six million barrels per day, with Saudi Arabia announcing it would subtract another million barrels per day, for a total of seven million barrels out of an international total of just under 100 million barrels per day. In a May 9, 2023, EIA article, the author explained it this way:
“Over the past few years, OPEC+ meetings have focused on reducing oil production to help stabilize oil prices after the COVID-19 pandemic, which dramatically reduced demand and led to significantly lower oil prices. More recently, on April 2, 2023, OPEC+ members agreed to cut oil production by 1.2 million b/d until the end of 2023, which is in addition to production cuts already in place. This agreement means production targets will be 3.66 million b/d lower each month relative to actual August 2022 production through the end of 2023. Although these cuts are significant, we expect that growth in non-OPEC oil supply over the next two years will help balance markets and limit any significant increases in oil prices.”
Prices for crude oil slowly began to inexorably rise after the February 2021 production cuts as oil stockpiles dwindled. Taking out just over 7% of the world’s daily production of crude cannot easily be replaced. It was OPEC and not the current administration that caused the price rise for crude oil based energy supplies.
At that time of the 2021 OPEC vote, international crude oil prices were in the $35 per barrel range, largely due to pandemic-induced cuts in consumption. Gasoline in the U.S. was selling at approximately $2 per gallon.
I don’t know just how many FlaglerLive readers know how much crude oil is stockpiled worldwide, but in the U.S., crude oil storage capacity as of March 2023, per the EIA, was 814.87 million barrels of crude oil. That figure includes oil already deposited in storage tanks, oil in transit in pipelines, oil in rail tank cars, and oil in ship and barge tankers. The figure excludes oil coming from Alaska, as that oil does not necessarily come to the U.S., it might be enroute to other nations.
It should seem obvious to all FlaglerLive readers that when OPEC significantly cut crude oil production, supply shortages would gradually begin to ripple through the international marketplace and even into the American oil industry, but it wasn’t an immediate and abrupt shock. Within a year, international prices for crude oil were in or above the $80 range. Eventually oil broached the $100 per barrel hurdle. U.S. energy companies began drilling for more crude oil in order to take advantage of the higher prices. Last year, American oil production averaged a record-breaking 13.2 million barrels per day.
OPEC has repeatedly voted to keep and even expand the original production cuts in its effort to keep oil prices at or above $80 per barrel. The most recent vote extended current production reductions through June 30, 2024.
The EIA defines “spare OPEC capacity” as the amount of additional crude oil that OPEC could begin extracting from existing wells in 30 days and maintain that rate of extraction for at least three months. Currently, OPEC has a spare capacity of 4.33 million barrels of crude oil per day. This is without drilling any new wells.
Prior to the pandemic, Saudi Arabia announced plans to develop additional infrastructure in order to increase overall export capacity to 13 million barrels per day. It already could export 12 million barrels per day. Late last year, Saudi officials announced that the country was abandoning plans to increase its export capacity. Current Saudi extractions hover in the 9 million barrel per day range. Industry analysts estimate that if Saudi oil sells at or above $80 per barrel, the entire national budget can be funded by oil revenue alone, even at 9 million barrels per day.
There were 13 OPEC member nations as of the February 2021 vote. Angola left the alliance late last year, taking out 1.2 million barrels of production per day. There are another 10 non-voting members. Brazil announced that it would accept an invitation to join those 10 non-voting members at some point this year, bringing in its 3.2 million barrels of production per day. Between these 23 nations, total production capacity is well over 40 million barrels per day. OPEC+ will soon be economically stronger than it used to be.
During the past three years, non-OPEC nations have increased crude oil production by more than 2.9 million barrels per day. The majority of the increase came from the U.S. and Brazil, with Canada a distant third. Given the long-term higher international prices for various grades of crude oil, American energy companies are posting record profits. But in this case, it cannot be deemed “gouging”; it is simple the product of international supply and demand. When international prices rise, American energy companies drill for more oil. When prices drop, they reduce efforts to explore for more oil.
On March 21, 2024, the EIA published another of its “Today in Energy” papers. In this article, the EIA predicts that worldwide short-term demand for crude oil will continue to outstrip supply. U.S. gasoline prices are expected to hover in the $3.50 range through the end of 2025. Worldwide consumption of crude petroleum products and distillates are expected to average 102.2 million bpd in 2024. Worldwide production in the second half of this year is expected to average 101.3 million bpd. Crude oil stocks from all over the world will have to be drawn down to make up the difference.
Natural gas production in the U.S. is also at record levels. After Russia invaded the Ukraine, most European countries nearly immediately imposed sanctions on imported Russian natural gas. Demand for American natural gas rose significantly. Prices for natural gas spiked to over $6 per million BTU’s (1000 cubic feet) because America was exporting some much of its domestic natural gas to Europe. Demand outstripped supply. Then, one of the largest and newest liquefaction facilities blew up. Exports dropped, though not by that much. Natural gas prices in the U.S. have dropped to under $2 per million BTUs because of production increases and export decreases. A temporary glut in domestic supplies of natural gas exists.
FP&L recently applied for permission to lower its energy prices to consumers because of the drop in domestic natural gas prices, after getting permission to raise rates when natural gas prices rose after the invasion of the Ukraine.
The damaged liquefaction facility recently reopened, and American exports are on the rise again. Three more new liquefaction plants are slated to soon open, thereby further increasing American export capacity.
America exported zero natural gas in early 2016, because no company had built a liquefaction plant for export of liquified natural gas (excepting the one in Kenai, Alaska that was closed decades ago). Since 2016, when the first continental liquefaction facility opened at Sabine Pass, Louisiana, America has become the largest natural gas exporter in the world. This happened over only eight years! The Cheniere Energy story is a fascinating one. Perhaps I will pass it on to FlaglerLive readers one day.
Hydropower production has been steady, despite significant drought conditions that have eased somewhat.
Nuclear power production has remained steady.
Windfarm power production is increasing rapidly.
Solar farm power production is increasing rapidly.
Please, PAUL FEELEY, stop engaging in the spread of disinformation. You are extraordinarily wrong in your claim. The current administration did very little to impede the domestic production of many forms of energy in this country. In fact, domestic energy production has rapidly increased during the term of this administration, on many fronts.
Please don’t go stupid on FlaglerLive readers by claiming that shutting down the northern leg of the XL pipeline caused an energy shortage. The northern leg story is one of the more false of the many false arguments floating around the internet. The northern leg might not yet be open today even if approval to build it had it had not been withdrawn because construction of such a long pipeline takes time.
Let’s face facts. An incomplete pipeline does nothing to impact past energy price rises. And the southern leg of the XL pipeline is already full of oil extracted from North Dakota oil fields. The Canadian company has another pipeline that pipes oil through Canada and it has access to rail tank cars to transport whatever oil it extracts. If the northern leg of the pipeline were ever to be completed and hooked up to the southern leg, and if Canadian oil were ever to enter the southern leg of the pipeline, it would displace the American oil already flowing through it. The displaced American oil would then have to be transported to market by rail.
Rail transport costs significantly more than pipeline transport (roughly $15 per barrel vs. $5 per barrel), so American oil companies would have to pay more to get American oil to market. Either way, any additional Canadian extracted oil would have to be transported by rail. Either Canadian companies will have to pay more for the rail transport or American companies will pay more, because existing pipelines are already operating at full capacity.
Does anyone wonder why BNSF is making so much money? It is still transporting crude oil from North Dakota by rail, because the southern leg of the XL pipeline is limited to some 600,000 barrels per day. North Dakota is still producing some 1 million barrels per day. BNSF owns the rail line between North Dakota and Houston. Its trains were running as fast as they could between those two sites. Limited in overall train length by marshalling yards built to handle trains no longer than 108 cars (according to my son who used to work for BNSF as a train dispatcher), BNSF would accept product from the highest bidder. When North Dakota oil companies were paying more to get oil to Houston (before the southern leg of the XL pipeline opened), North Dakota farmers had an entire winter wheat crop left unshipped in overflowing silos and in the fields; they simply couldn’t pay as much as the oil companies were paying. When the southern leg opened with its northernmost point in Nebraska and rail transport of crude oil was diverted to the shorter route between North Dakota and Nebraska, instead of travelling all the way to Houston, the faster turnaround times meant that BNSF could then devote grain cars to transport the winter wheat at a price the farmers could afford to pay.
In summary, the current administration did very little to increase American energy prices. Indeed, history shows that the opposite has happened. Oil production is at record levels. Natural gas production is at record levels. Wind energy production is at record levels. Solar energy production is at record levels. The only part of the overall American energy picture that is lower today than it was four years ago is electrical energy produced by coal-fired plants. Since coal-fired electricity production is the most expensive way to produce electricity available today, it stands to reason that it is rapidly falling in overall usage. Many current coal-fired plants are fired up only on days of highest electricity demand and then shut down when demand drops. Why pay $110 per megawatt of power for coal-fired plants when natural gas-fired plants can produce the same amount of electricity at a cost of between $50-60? When both wind power and solar power can produce energy at costs lower than can natural gas?
