Why record US oil reserves is no reason for cheering
Reasons to be cheerful? (Source: Wally Skalij / Los Angeles Times and EIA)
Yesterday EIA released an update on US oil and gas reserves. Oil reserves now stand at 45 billion barrels at the end of 2018, and increase of 4.7 billion barrels. Natural gas is a whopping 500 trillion cubic feet (tcf). Why I am not cheering particularly for the oil reserves? A number of reasons, but the bottom line is that there is no national policy to use this abundant natural resource in a sustainable manner that allows for prosperity today and future generations.
Not-for-profit shale
Much of the reserves additions comes from shale oil deposits in the Permian and other basins. A number of observers, including myself, have questioned the financial viability of the US shale oil as a profitable business. The stock market concern knows this too, the energy sector that includes oil and oil services, is bottom of the class in the S&P 500 over the last 5 or so years. All signs are retrenchment has started and consolidation may be the only way for US shale oil to do better. Last comment I’ve heard is that the industry has piled up $650 billion of debt versus an annual income of some $70 billion. That’s not prosperity except for a few.
US energy independence is not secured
In 2018 the US consumed 7.5 billion barrels of oil. That’s almost twice as much as the reserves addition and similarly almost twice as much as was produced from American oil fields. At the current rate of oil consumption (which is growing), America’s reserves would last 6 years. Of course the oil is not being produced at that rate, but at current rates of production US oil reserves will last 12 years. The rest of annual consumption comes from foreign source. America is dependent on foreign oil (mainly Middle East). Without a policy of conservation and planned transition to other energy sources for transport this dependency will only get worse. I can see not purpose to the export of US oil except for producers to command a better price than they would in a US only market. Exporting energy for use in other economies doesn’t do US manufacturing any good
Environmentally unsustainable too
Not only is the consumption-supply balance very worrying, but the production and consumption of oil as a fuel has to radically change if the US is to make its contribution to arresting global warming. About 4/5 of US consumption of oil is as fuels, so the production and consumption of that oil for fuel leads to about 3 billion tonnes CO2e of annual emissions as well increased in NOX, SOX emissions and hence ozone pollution in American cities. That 3 billion tonnes is about 7% of the global annual total.
A sustainable plan for the future
America needs a conservation policy for its oil aimed at radical demand destruction for oil as a fuel. The conserved reserves can be retained for use as a feedstock for all the useful materials and hence products that oil molecules provide for. Natural gas needs a similar plan although its destiny as a fuel may be prolonged by substitution for coal, both in the US and internationally, together with carbon capture and sequestration.