(06-25-2014 11:43 PM)Owl 69/70/75 Wrote:  

(06-25-2014 11:36 PM)NIU007 Wrote:  

(06-25-2014 11:32 PM)Owl 69/70/75 Wrote:  

(06-25-2014 11:23 PM)NIU007 Wrote:  

(06-25-2014 11:19 PM)Owl 69/70/75 Wrote:  Number one, it's not a choice whether or not to produce the condensate, which is very light oil. It's a by-product of the shale natural gas production, so as long as they produce the gas, the oil happens. The question is what to do with it. We can use it domestically and import less, or export it and import more. In some cases, it's more efficient to export the condensate and import heavier crude for our refineries. Either way, we are in about a 10 million barrels per day NET import position and that oil is all subject to the world market. If we export zero, we import 10 million barrels; if we export 1 million, we import 11 million. So the relatively small amount we export doesn't give us much in the way of relief from the world market.

The theory commented upon in this thread was that it would be stupid for an American citizen to not want to export. Even if the impact of not exporting was small, that would still make for a rational incentive for U.S. citizens to not want to export, at least in the short run.

The impact is not small. It's somewhere between microscopic and nonexistent.

Importing 10 million vs. 11 million is a 9% difference. It's small, but hardly microscopic and certainly not nonexistent.

But you're not importing 11 million unless you are also exporting 1 million. So you export 1 million at world prices and import an addition 1 million at world prices. The net effect is zero. Not exactly, because of gravity differentials and shipping costs, but not enough to have any material impact. 11 million imports at the world price minus 1 million exports at the world price equals 10 million net imports at the world price, either way.

But the extra million is not at world prices. They can only sell it in the U.S.

(06-25-2014 11:52 PM)NIU007 Wrote:  

(06-25-2014 11:43 PM)Owl 69/70/75 Wrote:  

(06-25-2014 11:36 PM)NIU007 Wrote:  

(06-25-2014 11:32 PM)Owl 69/70/75 Wrote:  

(06-25-2014 11:23 PM)NIU007 Wrote:  The theory commented upon in this thread was that it would be stupid for an American citizen to not want to export. Even if the impact of not exporting was small, that would still make for a rational incentive for U.S. citizens to not want to export, at least in the short run.

The impact is not small. It's somewhere between microscopic and nonexistent.

Importing 10 million vs. 11 million is a 9% difference. It's small, but hardly microscopic and certainly not nonexistent.

But you're not importing 11 million unless you are also exporting 1 million. So you export 1 million at world prices and import an addition 1 million at world prices. The net effect is zero. Not exactly, because of gravity differentials and shipping costs, but not enough to have any material impact. 11 million imports at the world price minus 1 million exports at the world price equals 10 million net imports at the world price, either way.

But the extra million is not at world prices. They can only sell it in the U.S.

But you're talking microscopic differences there. West Texas Intermediate is $107 today, Brent is $114, and that's basically quality and location differences.

It's not like it would sell for $20 or something like that in the domestic market.

Okay, $7 a barrel times a million barrels is still $7 million. Obviously it isn't going to be $20 a barrel domestically.

As long as the oil is good enough for domestic use, that's still significant. And location is, of course, part of the issue. If it's local it's going to be a little cheaper.

(02-24-2014 10:55 AM)VA49er Wrote:  Ran across an interesting article in the Economist dealing with the US's shale oil boom. The article is pretty complementary noting America's ingenuity, technology, and finance. The article goes on to talk about how this new found oil should maybe reshape America's foreign policy, particulary with regard to the Middle East. Interesting article. Take a look.

Geopolitics - The Petrostate of America

Quote:“RISE early, work hard, strike oil.” The late oil baron J. Paul Getty’s formula for success is working rather well for America, which may already have surpassed Russia as the world’s largest producer of oil and gas (see article). By 2020 it should have overtaken Saudi Arabia as the largest pumper of oil, the more valuable fuel. By then the “fracking” revolution—a clever way of extracting oil and gas from shale deposits—should have added 2-4% to American GDP and created twice as many jobs than carmaking provides today.

All this is a credit to American ingenuity. Commodities have been a mixed blessing for other countries (see our leader on Argentina). But this oil boom is earned: it owes less to geological luck than enterprise, ready finance and dazzling technology. America’s energy firms have invested in new ways of pumping out hydrocarbons that everyone knew were there but could not extract economically. The new oilfields in Texas and North Dakota resemble high-tech factories. “Directional” drills guided by satellite technology bore miles down, turn, bore miles to the side and hit a target no bigger than a truck wheel. Thousands of gallons of water are then injected to open hairline cracks in the rock, and the oil and gas are sucked out.

From the point of view of the rest of the world, the new American petrostate is useful. Fracking provides a source of energy that is not only new but also relatively clean, cheap and without political strings. It should reduce the dependence on dirty fuels, such as coal, and extortionate suppliers, such as Russia. Moreover, fracking is unusually flexible. Setting up an oil rig in the Gulf of Mexico can take years. But America’s frackers can sink wells and start pumping within weeks. So if the oil price spikes, they drill more wells. If it falls, they let old ones run down. In theory, fracking should make future oil shocks less severe, because American producers can respond quickly.

Fracking all over the world

Some foreign-policy wonks argue that this dramatic change in America’s fortunes argues for a fundamental change in the country’s foreign policy. If America can produce its own oil, they argue, why waste so much blood and treasure policing the Middle East? Yet even if it were politically sensible for America to disengage from the world—which this newspaper does not believe it is—the economic logic is flawed. The price of oil depends on global supply and demand, so Middle Eastern producers will remain vital for the foreseeable future. It is in the superpower’s interest to keep Gulf sea lanes open (and not to invite China to do the job instead).

Although America’s foreign policy should not change, its energy policy should. Its ban on the export of crude oil, for instance, dating from the 1970s, was intended to secure supplies for American consumers. But its main effect is to hand a windfall to refiners, who buy oil cheaply and sell petrol at the global price. Barack Obama should lift it so that newly fracked oil can be sold wherever it makes the most cash. And he should approve the Keystone XL pipeline, which would carry oil from Canada’s tar sands to American refineries; an exhaustive official study has deemed the project environmentally sound.

America does not ban the export of natural gas, but it makes getting permits insanely slow. Fracking has made gas extraordinarily cheap in America. In Asia it sells for more than triple the price; in Europe, double. Even allowing for the hefty cost of liquefying it and shipping it, there are huge profits to be made from this spread. The main beneficiaries of the complicated export-permit regime are American petrochemical firms, which love cheap gas and lobby for it.

Mr Obama should ignore them. Gas exports could generate tankerloads of cash. To the extent that they displace coal, they would be good for the environment. And they could pay foreign-policy dividends, such as offering Europeans an alternative to Russian gas and so reducing Vladimir Putin’s power to bully his neighbours. Allowing exports might cause America’s domestic gas prices to rise a little, but it would also make American frackers pump more of it, cushioning the blow.

A world in which the leading petrostate is a liberal democracy has much to recommend it. But perhaps the biggest potential benefit of America’s energy boom is its example. Shale oil and gas deposits are common in many countries. In some they may be inaccessible, either because of geology or because of environmental fears: but in most they go unexploited because governments have not followed America’s example in granting mineral rights to individual landowners, so that the communities most disrupted by fracking are also enriched by it. Become a champion of a global fracking revolution, Mr Obama, and the world could look on America very differently.

We didn't get out of the stone age for lack of rocks. Therefore we shouldn't wait until we are out of oil to get out of the oil age.

(06-26-2014 12:04 AM)NIU007 Wrote:  Okay, $7 a barrel times a million barrels is still $7 million. Obviously it isn't going to be $20 a barrel domestically.
As long as the oil is good enough for domestic use, that's still significant. And location is, of course, part of the issue. If it's local it's going to be a little cheaper.

No, that really isn't the way it works.

One, $7 million sounds like a lot, but compared to 20 million barrels a day moving at about $100+/bbl, or about $2 billion per day, it's not material. It's some fraction of a cent per gallon of gasoline. And any actual impact would be much smaller for several reasons, including that were are unlikely to export as much as a million barrels per day.

Two, the big difference between WTI and Brent is transportation. We don't have the pipeline capacity to move all our domestic production to refineries (ever heard of that before?), and that means more expensive rail plus storage awaiting transport that costs money, and that's basically the difference. So WTI trades at a discount because of difficulty getting to market. You can actually look at a map of worldwide pricing points and it's pretty obvious that the difference in price from point A to point B is primarily the cost to transport from one to the other. So at least theoretically, WTI at $107 and Brent at $114 would both cost the same to land in, say, New York harbor. And there goes essentially all of that $7 million you were talking about.

Three, refineries are set up to be most efficient refining the type of oil they usually see, and this is very light oil which isn't what most US refineries handle very best. It's actually high quality, just not exactly what the refineries are set up for.

Given these and other factors, it's actually most efficient for the worldwide system as a whole that this condensate move overseas and other oil be imported to the US to replace it. And yes, domestic production prices are tied to world prices no matter what. Remember that the left's counter argument to "drill, baby, drill" was that since domestic prices are tied to world prices, it wouldn't affect the price we pay at the pump? Well, this is that same argument. You can't argue that then without arguing consistently that this doesn't have any material impact.

Of course, you may also remember that the left's other counter argument to "drill, baby, drill" was that it would take more than 10 years to have any impact on domestic production volumes. How did that turn out?

(06-26-2014 12:07 AM)Fitbud Wrote:  We didn't get out of the stone age for lack of rocks. Therefore we shouldn't wait until we are out of oil to get out of the oil age.

Of course not. But we have to have something to go to before we can leave oil. And right now we don't.