AEIdeas

The public policy blog of the American Enterprise Institute

Subscribe to the blog

Discussion: (15 comments)

  1. Hey Mark, any idea how much crude oil goes towards Pharmaceutical products?

  2. PeakTrader

    However, it was also reported today, inventories fell, which subtract from GDP:

    Feb 8, 2013

    “Inventories at U.S. wholesalers unexpectedly fell in December for the first time in six months as companies tried to keep pace with cooling sales.

    The 0.1 percent decrease in stockpiles followed a revised 0.4 percent rise in November that was smaller than originally reported. The median forecast in a Bloomberg survey called for a 0.4 percent gain.

    The drop in stockpiles at distributors means inventories will probably subtract even more from fourth-quarter economic growth than currently estimated, partially offsetting a December plunge in the trade deficit that will help boost gross domestic product.”

    1. PeakTrader

      I suspect, they made the 0.8% upward revision for the quarter by dividing $15 trillion (annual GDP) by 4 (four quarters) = $3.750 trillion, and then take $30 billion (fourth quarter narrowing of trade deficit) divided by $3.750 trillion = 0.08.

  3. I assume that you are aware that the US is still importing 8 million bdp and that the only reason refineries are exporting as much as they do is because demand has collapsed to multi-year lows due to a severe contraction in the real economy.

    1. Or, the reasons may be lower cost crude supplies and very cheap natural gas which is used to refine oil, in fact is the largest operating cost for refiners. The USA has the lowest cost natural gas outside of the Middle East. A number of refineries have closed in Europe and the Caribbean Isles, but not here. A $10 billion new refinery just opened in Texas. We import crude and export refined products. It is good for our economy.

      1. Or, the reasons may be lower cost crude supplies and very cheap natural gas which is used to refine oil, in fact is the largest operating cost for refiners.

        It is not difficult to see that there is a lot of cheap gas in the US. That lowers the costs for refineries and those of us who invest in them are very happy. But that does not explain why the US is exporting more refined petroleum.

        The USA has the lowest cost natural gas outside of the Middle East. A number of refineries have closed in Europe and the Caribbean Isles, but not here. A $10 billion new refinery just opened in Texas. We import crude and export refined products. It is good for our economy.

        Yes it is. But you are still missing the point. US fuel demand has collapsed to around a 15-20 year low because the real economy has contracted so sharply. The petroleum exports are good news. The decline in demand is a sign of weakness.

        1. Without a doubt the real economy has contracted significantly since 2006 and it has been kept on life support through unsustainable deficit spending and money printing.

          I enjoy the good professor’s posts since he focuses on positive economic developments and this balances the negative observations found on most other blog sites.

          And IMO he is spot on regarding the potential of domestic oil and natural gas production to increase our global competitiveness and drive a renewal in real economic growth – if only the policymakers would listen and could comprehend.

          1. I enjoy the good professor’s posts since he focuses on positive economic developments and this balances the negative observations found on most other blog sites.

            Cheerleading is just as bad as fear mongering. Both approaches ignore the truth by being selective with cherry-picked facts and can do serious damage to those that give the proclamations the benefit of doubt.

            And IMO he is spot on regarding the potential of domestic oil and natural gas production to increase our global competitiveness and drive a renewal in real economic growth – if only the policymakers would listen and could comprehend.

            Yes, production of natural gas has exploded. And yes, that is great for us consumers of gas. And it would continue to be great if that production is sustainable. But the problem is that the production is not sustainable. Most of the wells drilled in the last four years are now producing less than 25% of their IP rates and that number is only as high as it is because there were so many wells drilled in the past year AND a backlog of unfracked wells that will keep adding supply to the market for close to a year. These wells are not self financing. (They consumed more cash than can be generated by selling their product.)

            But we cannot ignore reality. Destroying capital is the way to poverty, not riches. And you cannot just switch horses and claim that it is ‘different’ for shale oil than it was for the shale gas story.

            What we need to do is figure out a way to make the transition away from fossil fuels once Hubbert’s Peak is behind us. By cheerleading capital destroying activities we reduce our dependence on conventional production. That means that we will be less willing to invest in the activities that are necessary for conventional production and are likely to have a harder fall at the back end of the curve than necessary.

            Being optimistic is not a virtue when that optimism is gained by ignoring reality.

          2. Sorry Vangel, but you have just crossed over the line from rational to ideological. Your “facts” regarding shale gas are ideological distortions.

            Natural gas production is declining at a very slow rate. in spite of a 2/3rds reduction in drilling rigs, natural gas supply levels remain stubbornly high, dropping less than 1% over the past year. Technology advances such as multiple-fracking and movable pads are increasing the productivity (aka lowering the costs of production) of oil and gas drilling by orders of magnitude.

            All wells experience an initial rapid fall off in production, shale to a greater extent than conventional and then settle at a lower rate at which they continue to produce for up to 30 years. The beauty of the market place is that all of these factors get priced in and risk assessed and those who make the best decisions prosper while those who screw up fail.

            Many companies who have far better information than you or I have committed $ billions, even $ tens of billions based on their rational conclusions that domestic natural gas resources will be cheap and plentiful for decades to come – Google Nucor, Dow, Sasol, Cheniere, nearly every electric power company. Even the Obama Administration has reached this conclusion.

            You are apparently unable to accept information that conflicts with your “anti-fossil fuel” biases and you are too willing to accept as fact that which supports them. The market place will reveal the truth and all indications are that Mr. Market has concluded that the domestic natural gas boom is real.

            Bottom line, it is pointless to converse with you as you are not seeking the truth, rather you are seeking affirmation of a personal belief system that you have too much invested in to think rationally.

          3. Sorry Vangel, but you have just crossed over the line from rational to ideological. Your “facts” regarding shale gas are ideological distortions.

            No they are not. I have no ideological bone in this dogfight because all I care about is profit. In the shale gas sector there hasn’t been any profits and the producers had to rely on debt, asset sales, and equity dilution to keep operations going.

            Natural gas production is declining at a very slow rate. in spite of a 2/3rds reduction in drilling rigs, natural gas supply levels remain stubbornly high, dropping less than 1% over the past year. Technology advances such as multiple-fracking and movable pads are increasing the productivity (aka lowering the costs of production) of oil and gas drilling by orders of magnitude.

            A slow decline? A shale well is down to less than 75% of IP after the first year. Is that what you define as slow?

            I think that you are confused by the backlog of drilled wells that are yet to be fracked. That backlog will take six to twelve months to clear and until then you will have new wells coming on line without doing much drilling. That will keep production from collapsing but will not change the ultimate reality.

            All wells experience an initial rapid fall off in production, shale to a greater extent than conventional and then settle at a lower rate at which they continue to produce for up to 30 years. The beauty of the market place is that all of these factors get priced in and risk assessed and those who make the best decisions prosper while those who screw up fail.

            Where are you getting 30 years for fracked shale wells? There is no such animal. To estimate the URR you need to look at the production data. And that is not supportive of the claims that you are making.

            Many companies who have far better information than you or I have committed $ billions, even $ tens of billions based on their rational conclusions that domestic natural gas resources will be cheap and plentiful for decades to come – Google Nucor, Dow, Sasol, Cheniere, nearly every electric power company. Even the Obama Administration has reached this conclusion.

            Really? Then why was it that Tillerson finally admitted what we have been screaming about for more than two years? Why did he overpay for shale assets on which he is losing his shirt?

            You are apparently unable to accept information that conflicts with your “anti-fossil fuel” biases and you are too willing to accept as fact that which supports them. The market place will reveal the truth and all indications are that Mr. Market has concluded that the domestic natural gas boom is real.

            I invest in coal, oil, and gas so I have no anti-fossil fuel bias. What drives me is the promise of a profit and there is no such thing in shale unless you are relying on quick trades. If you prefer fundamentals and long term investing shale is poison because it destroys capital. This is why you can’t find shale gas producers with 10-Ks that show that their production is self financing.

            Bottom line, it is pointless to converse with you as you are not seeking the truth, rather you are seeking affirmation of a personal belief system that you have too much invested in to think rationally.

            For several years I have asked anybody to show me 10-K filings that show that shale gas production has been profitable. While they can point to a well or two that is very profitable they can’t point to a field or formation in which the average well that the company is drilling is self financing.

            I think that you are proving why people keep falling for bubbles and wind up losing their shirts. All the information is clear and readily available. Yet, you can’t see it for what it is.

  4. helping lower oil imports …which was the country’s lowest dependence on foreign sources of oil since 1991, more than 20 years ago.

    Lowest by volume, certainly not by price. 1991 crude oil nominal imports were $37 billion, 2012 imports were $314 billion, a more than 8-fold increase in price for the same volume of crude.

    Census crude oil historical import data

  5. What is happening is that the US is doing the refining on imported oil and re-exporting it thereby adding value. Its not that the oil is produced in the US that is net exported, but it turns out for various reasons US refineries are better and refining than others.

    1. Maybe. But fuel oil imports are $45.6 billion or net exports of $14.6 billion and petroleum products imports are $50.3 billion or net exports of $6.7 billion. So $21 billion of net product exports in those 2 categories versus $310 billion of crude oil net imports does not have much implication for U.S. growth on a trade basis.

  6. what about the $145,992 billion of exported Automotive vehicles, parts, and engines? (p 19 of the pdf)

  7. MacDaddyWatch

    FRACKINOMICS working overtime for the American economy.

Comments are closed.

Sort By:

Refine Content:

Scholar

Additional Keywords:

Refine Results

or to save searches.

Open
Refine Content