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More milestones for America’s shale revolution, which has elevated the US to the world’s No. 1 energy superpower
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Three new important energy milestones were reached recently, based on energy data released this week by the Energy Information Administration:
1. US oil production increased last week to 8.97 million barrels per day (bpd), which is the highest level of domestic crude oil production in the 32-year history of the Energy Information Administration’s “Weekly Petroleum Status Reports” starting in January of 1983 (see chart above). Thanks to the revolutionary drilling techniques of hydraulic fracturing and horizontal drilling, America’s ‘petropreneurs’ have accessed oceans of shale oil in states like North Dakota and Texas, and oil production in the US has increased by 62% and by almost 3.5 million barrels per day in the last four years. That production increase since October 2010 is the equivalent of adding all of the oil produced in Iran (3.4 million bpd) or Europe (3.6 million bpd) to the US oil supply. At the current pace, the US is on track to surpass the 9 million barrel per day production milestone within the next few weeks, and daily output could reach the 10 million barrel milestone by the end of next year, matching the all-time US record high oil production set in late 1970.
2. Thanks to the surging production of US shale oil, which has been accompanied by a one-third (and 3.5 million bpd) decline in oil imports in the last eight years, net oil imports have fallen from above 60% in 2005 to below 28% this year through September (see chart above). That marks the country’s lowest dependence on foreign sources of petroleum products since 1985, almost 30 years ago. The chart shows the profound impact of the shale oil revolution on America’s energy independence and the speed at which it happened – it took 20 years for the US dependence on oil imports to rise from 27.3% in 1985 to 60.3% in 2005, and then less than a decade to completely reverse that upward trend and bring net oil imports to below 28% by this year.
3. The surging production of shale oil, along with an equally significant one-third increase in US shale gas production since 2008 to become the world’s No. 1 gas producer, has increased the share of America’s total energy consumption produced domestically (from all sources: fossil fuels, nuclear and renewables) to 86% this year (through July). That’s the highest level of energy self-sufficiency for the US since 1985, almost 30 years ago, when domestic energy production accounted for 88.6% of the total energy consumed that year (see chart above).
Bottom Line: The Great American Shale Boom continues to set new production records and reach new milestones on a regular basis and has turned out to be the most dynamic, successful, and powerful single sector of the US economy, thanks to the “American-made” drilling technologies pioneered and developed by America’s “petropreneurs.” Continental Resources CEO Harold Hamm recently summarized the profound and transformative implications of the shale revolution this way:
What this means is that America is no longer a bit player in global energy production. Now our country is well-positioned for energy independence by the end of the decade and then for world energy supremacy for decades to come.
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…. is from David Brooks, writing in the New York Times last week in his column “The Working Nation“:
Today, too many people are focused on the top 1 percent. But, as economist David Autor has shown, if you took all the wealth gains the top 1 percent made between 1979 and 2012 and spread it to the bottom 99 percent, each household would get a payment of only $7,000. But if you take a two-earner, high-school-educated couple and get them college degrees, their income goes up by $58,000 per year. Inequality is mostly a human capital problem.
MP: In the discussion on income inequality and various categories like the “top 1%” or the “top 5%” or the “bottom 20%” it’s important to note that Census Bureau data reveal a remarkably constant share of US income going to the top 5%, the top 20%, and the bottom 20% for the last 20 years, see chart above. The Census Bureau doesn’t provide data for the top 1% but the share of income going to its highest income category — the top 5% (brown line in chart) — was 21% in 1993 and increased only slightly to 22% by 2000, and it’s remained at that level for more than a decade. Likewise, the shares of income going to the top 20% (red line) and bottom 20% (blue line) have been remarkably constant over the last 20 years. So if there has been a major increase in income inequality, which is what everyone believes, it’s sure not showing up in the Census Bureau data on income shares. If there had been a significant increase in income inequality over time, shouldn’t the share of income going to the top 5% of the highest-income Americans be going up, instead of remaining flat for more than a decade?
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… is from Thomas Sowell’s nationally syndicated column today “Random Thoughts“:
Too many intellectuals are too impressed with the fact that they know more than other people. Even if an intellectual knows more than anybody else, that is not the same as saying that he knows more than everybody else put together — which is what would be needed to justify substituting his judgment for that expressed by millions of others through the market or through the ballot box.
MP: Sowell’s observation above is what Hayek called the “fatal conceit” of socialism, and it gives us insight into why the substitution of central planning and government intervention for the market usually fails – the central planners and regulators never have access to all of the information necessary to make efficient, welfare-enhancing, economically desirable decisions. Reason? The relevant information for decision-making does not exist in a central location; rather it is dispersed somewhat invisibly throughout the entire economy and consequently inaccessible to the planners/regulators. And therefore, the planners’ attempts to circumvent markets and/or correct alleged market failures will usually fail because of the lack of relevant information.
Documentary on economist Walter E. Williams will air tomorrow night on public television stations in Tucson, Richmond, and DC
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From the Free to Choose Network:
On the major social and political issues of our time, George Mason University economics professor Walter Williams is one of America’s most important and provocative thinkers. He is black, yet he opposes affirmative action. He believes that the Civil Rights Act was a major error, that the minimum wage actually creates unemployment and that occupational and business licensure and industry regulation work against minorities and others in American business. Perhaps most importantly he has come to believe that it has been the welfare state that has done to black Americans what slavery could never do: destroy the black family. Walter Williams expresses all of these provocative ideas and more in this new public television documentary produced by Free To Choose Network.
The program features material drawn from extensive contemporary interviews with Dr. Williams as well as appearances by authors and scholars: Charles Murray, Shelby Steele, Thomas Sowell, Douglas Ginsberg and others. A rich archive of photographs and motion pictures supports this uniquely American story.
The program traces Walter Williams rise from a child of the Philadelphia housing projects to become one of America’s most important authors and commentators and features the events of the 1960′s when Walter Williams realized “black people cannot make great progress until they understand the economic system.” It was then that he concluded that what America needed was to heed the words and the ideas of the Constitution.
Watch the video preview above. The full documentary will appear tomorrow night (Tuesday, October 28) on public television stations in Tucson (6 p.m. and midnight MT), Richmond (8 p.m.) and Washington, DC (8 p.m. and midnight ET).
Q: If oil speculators were to blame for the $12 per barrel January-June increase, do they now get credit for the $25 drop?
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Last summer, Sen. Bernie Sanders (I-VT), a member of the Senate energy committee, blamed greedy speculators for rising oil prices and he introduced legislation on June 26 that would “require the Commodity Futures Trading Commission to take certain emergency action to eliminate excessive speculation in energy markets.” Since Sen. Sanders’ legislation was introduced, oil prices have fallen by about $25 per barrel from a peak of $107.50 per barrel in June to below $83 per barrel last week. So let me have a little editing fun and update this report in the Burlington Free Press from last June:
Sen. Bernie Sanders, I-Vt., introduced legislation to make federal regulators invoke emergency powers to stop speculators from using the
turmoil in Iraq tothe US shale boom and the slowdown in global demand to drive updown oil prices.
The price of crude oil has
risenfallen by more than 523 percent since June 12, when militants attacked and took control of several Iraqi cities, thanks in part to a nearly 500,000 barrel increase in daily domestic oil production accompanied by weak global energy demand, according to Sanders’ office. Oil prices have risen 53fallen 42 percent since 20092008.
“The fact is that high gasoline prices have less to do with supply and demand and more to do with Wall Street speculators driving prices
updown so sharply in the energy futures and spot markets,” Sanders said in a statement.
AAA reported gas is
more expensivecheaper now than it has been in sixfour years at the beginning of the summer drivingwinter season. The average price of gas nationally today is $3.05 per gallon, according to GasBuddy.com, the lowest national average since December 2010. In Vermont, gas averaged $3.69$3.29 per gallon, and in Burlington, $3.75$3.36 per gallon - that’s about 40 cents per gallon lower than in June when Sanders introduced his bill. Speculation has help drive the price of gas at one station in Jay, VT to below $3 per gallon.
Sanders’ legislation would force the Commodity Futures Trading Commission, the federal agency that regulates oil markets, to use all of its authority, including its emergency powers, to eliminate excessive oil speculation to prevent prices from falling even further. The bill is co-sponsored by 17 senators, all Democrats. Rep. Rose DeLauro, D-Conn., is introducing a companion bill in the House to stop the greedy speculators from driving down prices at the pump even further.
MP: Here’s a question for Sen. Sanders and his 17 fellow Democratic sponsors: If greedy speculators were to blame for the $12 per barrel increase in oil prices during the first half of this year that motivated your anti-speculation bill in June, do oil speculators now get any of the credit for the $25 drop per barrel in oil prices over the last 4 months? And further, do we really still need your anti-speculator legislation?
In Sen Sanders’ fantasy world, I guess we are we to assume that greedy speculators only enter the futures markets when they “smell profits” from rising oil prices, but then they suddenly disappear whenever prices are falling? As if greedy traders can’t speculate just as easily on falling prices (with a short position), as they can for rising prices (with a long position)? Alternatively, I guess Sen. Sanders would have us believe that speculative trading (and not market forces) is solely (or largely) responsible for rising oil or commodity prices, but then market forces (and not speculation) suddenly take over and are responsible for falling prices? After all, greedy speculators who correctly anticipate the future direction of commodity prices can make just as much money when they correctly predict that prices will rise as they can when they correctly predict falling prices.
Realistically, Sen. Sanders and him Democrat co-sponsors can’t have it both ways. If speculators are to blame for rising oil prices, they have to also get the credit for falling prices. In that case, we and Congress should be celebrating and thanking the speculators for the recent drop in oil and gas prices that will save consumers collectively about $100 billion over the next year.
The ‘Fallacy of the Special Case’: Intellectual inconsistency and economic malpractice regarding the minimum wage
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Walter Williams explains why he considers it to be “economic malpractice” for (former) economist Paul Krugman (and others) to claim that the Law of Demand applies universally except apparently in one case: the demand for unskilled and low-skilled workers. As the title of his column suggests (“Embarrassing Economists“), Professor Williams finds it embarrassing that some (former) economists like Krugman are not bothered by their own “intellectual and economic inconsistency” (see graphic above). Here’s Walter:
Suppose the prices of automobiles rose by 100 percent. What would you predict would happen to sales? What about a 25 or 50 percent price increase? I’m going to guess that the average person would predict that sales would fall. Suppose that you’re the CEO of General Motors and your sales manager tells you the company could increase auto sales by advertising a 100 percent or 50 percent price increase. I’m guessing that you’d fire the sales manager for both lunacy and incompetency.
It turns out that there’s a law in economics known as the first fundamental law of demand, to which there are no known real-world exceptions. The law states that the higher the price of something the less people will take of it and vice versa. Another way of stating this very simple law is: There exists a price whereby people can be induced to take more of something, and there exists a price whereby people will take less of something.
There are economists, most notably Nobel Prize-winning economist Paul Krugman, who suggest that the law of demand applies to everything except labor prices (wages) of low-skilled workers. Krugman says that paying fast-food workers $15 an hour wouldn’t cause big companies such as McDonald’s to cut jobs. In other words, Krugman argues that raising the minimum wage doesn’t change employer behavior.
Krugman says that most minimum-wage workers are employed in what he calls non-tradable industries — industries that can’t move to China. He says that there are few mechanization opportunities where minimum-wage workers are employed — for example, fast-food restaurants, hotels, etc. That being the case, he contends, seeing as there aren’t good substitutes for minimum-wage workers, they won’t suffer unemployment from increases in the minimum wage. In other words, the law of demand doesn’t apply to them.
Let’s look at some of the history of some of Krugman’s non-tradable industries. During the 1940s and 1950s, there were very few self-serve gasoline stations. There were also theater ushers to show patrons to their seats. In 1900, 41 percent of the U.S. labor force was employed in agriculture. Now most gas stations are self-serve. Theater ushers disappeared. And only 2 percent of today’s labor force works in agricultural jobs. There are many other examples of buyers of labor services seeking and ultimately finding substitutes when labor prices rise. It’s economic malpractice for economists to suggest that they don’t.
MP: I’ve often referred to the “intellectual and economic inconsistency” described by Professor Williams above regarding the minimum wage (and displayed graphically above) as the “Fallacy of the Special Case.” For example, to somehow exempt the labor market for unskilled workers from the Law of Demand is to fallaciously create a “special case” for that market when in reality that supposed “specialness” cannot be supported by any theoretical or empirical evidence. In reality, there is really nothing “special” about the market for unskilled labor that would distinguish it in any economically important way from any other good or service. In other words, the Law of Demand and the Law of Supply are economic laws that apply universally, without exception, and without any “special cases,” in the same way that the Law of Gravity applies universally, without any exceptions or special cases (Walter Williams makes this point in his column). To allow for exceptions or special cases to market fundamentals and economic reality is faulty, inconsistent and fallacious thinking.
Here are some other examples of the Fallacy of the Special Case:
1. After a natural disaster like a hurricane, flood, tornado or earthquake, government-mandated price controls to prevent “price gouging” are frequently imposed by local or state governments because those major disruptions are incorrectly viewed as a “special case” that justifies temporarily ignoring fundamental economic laws of supply and demand and outlawing market prices.
2. Tickets to concerts or sporting events are a “special case” that justify laws and price controls that prevent those tickets from being sold above face value (i.e. “ticket scalping”). In contrast, other goods like old coins that sell above face value, new cars that sometimes sell above their sticker price, bonds that sell above their par (face) value, and houses that sell above their listed price are not considered to be “special cases,” and there are therefore no laws against “coin scalping,” “car scalping,” “bond scalping” or “house scalping.”
3. Rental apartments in some cities like New York City, Berkeley, and Santa Monica are viewed as a “special case” of housing that justifies special treatment in the form of rent control laws that exempt rental housing from fundamental economic laws of supply and demand. Other housing options like condominiums, homes, co-ops and hotels are not special, and are therefore not subject to any special exemptions from economic reality and market pricing.
Bottom Line: The real danger of the Fallacy of the Special Case is that those allegedly special exceptions to basic economic laws almost always result in legislation that is based primarily on political, and not economic, considerations – minimum wage laws, price gouging laws, ticket scalping laws, and rent control laws. Ignoring economics and/or attempting to circumvent market pricing by allowing for some markets or goods to be “special” might make sense politically, but the legislation that follows makes us much worse off economically, makes us all poorer, and lowers our standard of living. Politicians and the general public can be excused for falling for the Fallacy of the Special Case and supporting price controls like the minimum wage that make us worse off, but the economics profession and (former) economists like Paul Krugman should really know better.
Petropreneur Harold Hamm summarizes the profound implications of the Great American Shale Revolution
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Shale pioneer and “petropreneur extraordinaire” Harold Hamm (Continental Resources CEO) has a great op-ed in today’s Investor’s Business Daily titled “Fracking Revolution Cuts Prices, Drives A Stake Through OPEC’s Heart.” Mr. Hamm outlines some of the important, and yet frequently overlooked, consequences of the Great American Shale Boom and its profound geopolitical and economic implications, here’s an excerpt (emphasis added):
We have heard the story before: political turmoil in the Middle East, disruption of global oil supplies by members of OPEC. In the past, the unrest in Iran would be causing oil prices to spike up. Instead they have been falling by more than 25%. Gas prices at the pump have fallen to below $3 a gallon in many markets.
That’s quite a change from the past 40 years, when OPEC and other foreign oil producers have wielded oil as a political and economic weapon to slow down and even cripple the U.S. economy. Saudi Arabia was by far the world’s biggest producer. In those years we were highly dependent on foreign oil and captive to OPEC supply disruptions, which led to a wild ride of oil price gyrations.
No more. OPEC is becoming a toothless tiger.
And the underappreciated reason for this bullish turn of events is the U.S. energy revolution and the technologies that made this all possible. Thanks to horizontal drilling and other smart drilling technologies, we have unlocked a treasure chest of shale oil and gas and other unconventional domestic sources, so America now has an almost unlimited supply.
What this means is that America is no longer a bit player in global energy production. Now our country is well-positioned for energy independence by the end of the decade and then for world energy supremacy for decades to come. Already the U.S. has surpassed Saudi Arabia as the No. 1 oil producer (see chart above) and Russia as the No. 1 natural gas producer. It’s almost impossible for OPEC to drive the world price of oil when America is the biggest producer.
At the same time, the Saudis are technologically way behind the U.S. in oil and gas drilling. The oil sheiks are nearly maxed out at their current rate of production. By contrast, the U.S. has increased oil production by an enormous 65% over the past five years. We can and should use our nearly unlimited oil and gas supplies to drive a stake through the heart of OPEC — forever.
The energy revolution in America that I have been proud to be part of is obviously good for jobs and economic growth in the U.S. Without our industry, the U.S. would practically still be in a recession. And we are clearly helping fight terrorism by importing less oil from those who compete with and dislike us.
Now we are learning that the spectacular rise in American-produced energy is helping consumers in a big way. As technology improves, we are just seeing the first stages of higher domestic output and lower prices. The decline in oil and gas prices at the pump is like a $75 billion tax cut per year for U.S. households. Let’s see Washington deliver anything like that soon.
MP: Harold Hamm is best known for pioneering the development of the large shale oil resources of the Bakken formation in North Dakota, where those oil fields are now producing more than 1 million barrels of oil per day, double the amount just three years ago. Overall, the Bakken formation has now produced more than one billion barrels of oil in total, and in the process has transformed North Dakota into an “economic miracle state” with the lowest state unemployment rate in every month since January 2009. And yet despite the Bakken miracle and its major implications for the US economy, energy security and geopolitical advantages, it’s an area of the country that President Obama has completely ignored. Until June of this year, the President had never visited the Peace Garden State during his more than five years in office, and when he did decide to make a trip there in June he visited the Standing Rock Sioux Indian Reservation where the unemployment rate is 79% instead of visiting the Williston area at the epicenter of the Bakken boom where the county jobless rate is the lowest in the country at only 0.8%. Not surprisingly, the president continues to ignore one of the greatest and most remarkable energy success stories in US history – the Bakken boom that Harold Hamm is largely responsible for – even though the energy and jobs stimulus to the US economy provided by the shale boom probably helped him get re-elected.
HT: Warren Smith
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In today’s WSJ, physicist and Manhattan Institute senior fellow Mark Mills explains why “The Oil Price Swoon Won’t Stop the Shale Boom,” and why in fact Shale Boom 2.0 is coming, here’s an excerpt:
With oil prices sliding, energy investors are worried, while Saudi Arabia and Russia no doubt hope, that low prices will cap America’s boom in shale-oil production. But price dips are common in oil and other markets subject to cyclical swings. True enough, sellers of any product prefer high prices to low; but the current slump sets the stage for what I call America’s shale boom 2.0. Three factors make it unlikely that the decline in oil prices will bring the shale revolution to an end.
1. Shale production is profitable at today’s lower prices. We know this because the boom began during the Great Recession years of 2008-09, when prices fell below $50 a barrel. The price U.S. shale producers got for their oil during the boom averaged around $85 to $90, even though the world price stayed well over $100.
That spread—the difference between the West Texas Intermediate (WTI) and world (Brent) price—was a direct consequence of too much domestic oil chasing too little capacity to move, store and use it. Yet in the past five years alone more than $500 billion of private investment went into hydrocarbon infrastructure. U.S. shale output was obviously profitable enough to spur the stunning growth in production and infrastructure when domestic prices were in the same range as world prices today.
2. Shale production is getting more efficient, which means that profits are possible at prices even lower than today. Smart drilling techniques—horizontal drilling, hydraulic fracturing and information technologies that accurately locate where to place rigs and enable precise steering of the drill through meandering horizontal hydrocarbon-rich shales—are far more productive than when the boom started.
According to the Energy Information Administration, the quantity of shale or natural gas produced per rig has increased by more than 300% over the past four years (see examples in the charts above). This rise in productivity matches (in equivalent terms of capital cost per unit energy out) the improvements in solar power, but it took 15 years for solar’s gains. Solar is now experiencing a slow-down in efficiency improvements; there is no sign of a slow-down in shale technology.
3. You might think that the latest drilling technologies are already in use, an easy sell when cash is gushing. Not so. Businesses rationally resist spending to disrupt existing machinery and operations simply to learn new tools and techniques. But they will chase profits through efficiency-boosting innovation in leaner times.
The pipeline of next-generation shale tech has been piling up with unfielded advances. These include automated drilling, micro drilling that allows for far faster deployment with a smaller rig footprint and new types of drills (some may use lasers soon), and big-data analytics to maximize yields by tapping into the surprising volume of data from complex shale operations. There is also nanotechnology to radically improve chemical formulations and safety, on-site water recycling and even water-free fracturing, and new classes of high-resolution subsurface imaging to radically improve exploration and production using real-time and microseismic imaging.
In a few years, as new technologies are adopted, journalists will be writing again about the “surprise” that U.S. production expanded by another three million barrels per day on top of that much growth over the past few years. The bounty will in due course spread to other nations where the geophysical shale resources easily match the thousands of billions of barrels in the U.S. Oil prices will continue to experience cycles as technologies are deployed. And the world will stay awash in oil.