I rarely write about the energy industries in the US but, given that this edition of Energy coincides with OTC in Houston, I thought it appropriate to comment on some of the recent developments from an outsider’s perspective.
The BP Macondo oil spill in the Gulf obviously attracted a great deal of attention in the UK, whereas some other similarly important developments, such as the shale oil and gas boom and WTI oil prices, have grabbed far fewer headlines.
The US, the biggest energy consumers in the world until last year, has been overtaken by China. However, the Americans remain the biggest consumers and importers of crude oil and oil products.
Total primary energy consumption in the US in 2009 was 2.182billion tonnes oil equivalent (mtoe), according to the annual BP Statistical Review of World Energy. That total was -5% down on the previous year, and it seems that peak energy consumption in the country was in 2007.
The fall must in part have been attributable to the economic recession, but probably also to the impacts of high oil prices and energy conservation measures.
Energy consumption in the UK and many other EU countries had fallen steadily over the last decade before the recession.
By contrast, Americans have a reputation for profligate energy consumption though that now appears to be changing.
US oil consumption in 2009 totalled 842.9 million tonnes, equivalent to 18.7million barrels per day.
However, domestic production was only 325.3million tonnes, or 7.2million bpd, so the country imported more than 60% of its oil requirements. It therefore has a massive impact on world oil markets, including prices.
Oil consumption appears to have peaked in 2005 and fell by a massive -5.7% in 2008 and a further 4.9% in 2009.
Oil production declined steadily over the last decade but rose by a surprising 7.0% in 2009. The shale oil boom was clearly the main reason for that.
The consequent reduction in American oil imports should have exerted downward pressure on world oil prices, but that has not happened because of the rapidly rising demand from China and India.
The situation in the US gas industry is similar, although gas production is much more important. In 2009, the country consumed 646billion cu m of gas and produced 593.4bcm. Imports accounted for only 8% of gas consumption, compared with more than 60% of oil consumption.
US gas production was relatively stable in the decade to 2007, but has risen by about 10% since then, again mainly because of shale gas developments.
One result has been a fall in gas imports. Most of those are piped from Canada but there have been significant investments in LNG import terminals in recent years.
However, the shale gas boom has had a much bigger impact on international gas markets than oil markets. The need for LNG (liquefied natural gas) imports has virtually disappeared and there has been talk of converting some of the import terminals to export ones.
A consequence has been a glut of LNG in European markets and downward pressure on gas prices, including in the UK. That may be a temporary trend, particularly if gas exports from Libya are curtailed. Nevertheless, the resurgence in the US gas industry is impacting worldwide.
There are mixed hopes for shale oil and gas developments in the European Union. Indeed, there is strong opposition in some countries because of their environmental impacts. Though there are exceptions, like New York State, there appears to be significant acceptance in the US.
Finally, let me finish with a few comments on the bizarre differences between WTI (West Texas Intermediate) and Brent oil prices. The former is the main marker or benchmark crude in the US and the latter the main one in Europe and some other parts of the world. Both now account for tiny amounts of oil production but many other crude prices are linked to them.
Traditionally, WTI has traded a few dollars per barrel above Brent, to take account of the cost of transporting oil from the Middle East or elsewhere to the US. However, WTI has been trading at a discount of about $10 because of a glut of supplies at the theoretical Cushing delivery point. There is considerable debate among oil traders and economists about this, and I believe that the American oil pricing system requires a radical overhaul.
Tony Mackay is MD of economists Mackay Consultants
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