4:30pm November 15, 2012

Is the Obama Administration Really Creating an Oil Export Economy?


Last Tuesday, the International Energy Agency published its annual World Energy Outlook and in it shared some good news for proponents of American energy independence. The study found that the United States has experienced extraordinary growth in oil and natural gas production, and that the United States would become a net exporter of natural gas in 2020. The study also found that the U.S. will be very near to energy self-sufficiency by 2035.

According to the IEA, the rebound in U.S. oil and natural gas production has been driven by upstream technologies that are unlocking light tight oil and shale gas revenues. The IEA also attributed the reduction in domestic demand for oil to the implementation of fuel efficiency standards for transportation.

Yesterday, the private sector appeared to agree with the IEA’s assessment of America’s energy future, at least when it comes to natural gas. In a survey of 250 oil and gas professionals, Deloitte LLP found that three-fourths of the respondents believed the U.S. was self-sufficient in the production of natural gas. In addition, the respondents believed that natural gas prices will remain low throughout 2013, with a significant number of respondents believing that the price for natural gas would remain below $3 per million British Thermal Units (MMBTU).

The outlook is not as positive when it comes to oil production. The majority of respondents in the Deloitte survey believe that the United States would not become self sufficient in production of oil and that the country should expect to continue relying on foreign oil. Nor did the respondents expect much of a decrease in oil prices throughout 2013. The respondents expect the average cost of a barrel of West Texas Intermediate to fall within the range of $80 to $99 in 2013.

The Obama Administration has not been shy about pointing out that oil production in the United States has been on the increase during the Administration’s tenure. According to the White House, net imports as a proportion of domestic consumption have been declining since 2008. In 2008, net imports accounted for 57% of oil consumption in the United States. By 2011, net imports accounted for 45% of consumption in the United States.

What the Administration has been less forthcoming about is whether its regulatory policies are responsible for the decline. The IEA seems to equivocate on that issue. On the one hand, as discussed above, reduction in domestic demand for oil may be attributed to new fuel efficiency measures. In the United States, the Obama Administration implemented emissions and fuel efficiency standards for cars and light trucks in model years 2011 through 2016, and for commercial trucks, vans, and buses for model years 2014 through 2018. But giving the timing of these rules, can any attribution be given to Obama fuel efficiency policies for the reduction in domestic demand for oil?

The answer is probably no. The reason for the reduction in demand for oil probably falls on the effects of the last recession. Declines in national output, consumption, and labor employment track the decline in the proportion of domestic oil consumption made up by foreign oil. Also, increases in domestic oil production may be in response to projections in energy demand from China, India, and, ironically, the Middle East. According to the IEA, demand for energy is expected to increase significantly between now and 2035 with 60% of this increase in demand coming from Asia and the Middle East.

In the end, changes in energy consumption and production patterns may have more to do with global supply and demand than the Administration’s energy policies.

About the Author

Alton Drew
Alton Drew provides advocacy and consulting services in the areas of economic and personal liberty, broadband, and energy. Follow him on Twitter @altondrew; Facebook at http://www.facebook.com/alton.drew.5; or visit him at www.altondrew.com. The ideas and opinions expressed in this article are solely those of the author, and have complete editorial independence from any Politic365 partners, sponsors, or advertisers. For additional information about Politic365, please visit http://politic365.com/about/.



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