Carpe Diem

US drilling boom for shale oil is remaking America’s energy picture and has brought net oil imports to a 20-year low

From the WSJ last Friday:

“U.S. crude imports fell 9.2% in October from a year earlier to 8.091 million barrels a day, the lowest amount of imported crude since January 2000, according to U.S. Department of Energy data released today (see blue line in top chart above). The data are the latest illustration of how the drilling boom in North Dakota and other states is remaking the U.S. energy picture.

“The year-over-year drop of 816,000 barrels a day in crude imports was the eighth straight decline from year-earlier levels. The drop in crude imports came as domestic crude output rose 15.9%, or 935,000 barrels a day from year-earlier levels to 6.820 million barrels a day, EIA data show. That’s the highest since December 1993 (see red line in top chart).

“The surge was led by North Dakota, which saw its output rise in October to 747,000 barrels a day from 729,000 barrels a day.”

MP: The surge in domestic crude oil production in recent years, along with the decrease in crude oil imports, brought “net oil imports” to below 40% of U.S. oil consumption in October (39.8%), and the EIA’s preliminary estimates are that net oil imports fell even further in November to 38.4%.  For the year to date through November, the EIA estimates that net oil imports in 2012 will account for only 41.1% of U.S. oil consumption, which is the lowest dependence on foreign oil in 20 years, since the 40.7% share in 1992 (see chart above).

As recently as 2006, domestic crude oil accounted for only about 40% of U.S. oil consumption and imports for 60%.  In only six years, those shares of U.S. oil consumption have almost reversed, with domestic crude oil supplying almost 60% of America’s oil consumption this year, as the share of foreign oil has fallen below 40% in recent months.  As the WSJ points out, the drilling boom in shale-rich states like North Dakota and Texas, thanks to advanced drilling technologies, is completely “remaking the U.S. energy picture,” and in the process remaking the U.S. economy.

31 thoughts on “US drilling boom for shale oil is remaking America’s energy picture and has brought net oil imports to a 20-year low

  1. Aren’t we missing the obvious here? From what I can tell the data is showing that the real demand for oil in the US has fallen sharply from the peak and there is little evidence of an economic recovery. Oil in storage is still going up even as foreign imports slump because domestic demand has not grown with the growth in population.

    And the fact that production is increasing when massive investments have been made should not be a surprise. The questions related to the economics of those investments are still not answered and there is little evidence that shale will ever be economic outside of a few tiny core areas in the better formations.

  2. Increased domestic oil production is a good thing.

    I suspect oil prices will rise in the global economy during 2013, not so much due to US actions, but rather international actions. Increased domestic production will help insulate the US consumer (somewhat) from rising oil and gasoline prices.

    • The US is broke and the recent negotiations ensured that there will be no hope of fiscal sanity for a long time. The US consumer will not be insulated from much because the US consumer is vulnerable to a major correction in the USD, which should come once the Euro decline has run its course and the Yen gets wiped out by the BoJ’s money printing operations. I remain fascinated by the desire of smart people to ignore the actual data points as they continue to hope and wish for a Panglossian event that will wipe away all past sins and ensure a prosperous future. Given the fact that the Fed is now distorting all signals coming from the bond markets and the fact that there is no fiscal discipline I wonder how it is that you can be positive about a process that produces a product for a cost that is higher than the market price.

      • Because the companies I talk do disagree with you. They are making money here. They love fracking. it’s giving them an edge in the global marketplace.

        Even with a correction and all that, the US consumer is still insulated from oil price shocks because of domestic production. I am not saying there would be no price rise, of course there will, but it would break the bank (so to speak).

        One of the good things that have happened over the past decade or so is that oil costs, as a percentage of the personal budget, have fallen. Our cars are more fuel efficient. Our homes are better insulated. Natural gas is an alternative. Because of this, consumers are better prepared for oil price shocks than we were even just a few years ago. I mean, look at last year: gasoline prices were flirting with $4/gal, but the US economy continued to grow at a decent (not great) pace. Each time before that, when gasoline reached the $4/gal (or it’s inflation-adjusted equilivent) mark, the economy tipped into recession.

        What was nice about last year, however, was we did not see price increases in other things. I doubt we’ll be so lucky this year. The stage is set for a rather broad-based commodity rally: the US consumer will continue to spend, helping to support US growth. China is showing signs of a rebound despite European trouble. Early signs from Europe indicate the EU may be stabilizing (no growth, just stable). SE Asia is looking better. Russia is looking better. Brazil’s recovery from their recession is looking good. US Industrial Production is still growing, although the pace of growth is diminishing. Construction as a whole continues its slow but steady improvement.

        As commodities rise, so will prices. Food will especially rise after last year’s drought. Inflation combined with higher taxes will pinch the consumer and eventually tip us into a recession by year-end/early 2014.

        Oil prices will rise in 2013. Increased demand from China will help boost them. There may be a large international event that shocks supply (such as Israel attacking Iran or something along those lines). The spike won’t come from US oil demand.

        But my point here is when a good or service is produced domestically, the domestic consumers are relatively insulated from the shock. Lower transaction costs help limit the price gains. That is not to say there will be no price gains, there will be, but the level will be lesser. Similar to how the US has lower gasoline prices than, say, Korea.

        • I just want to be clear:

          I am not saying the Fed’s action will have no impact. They will.

          I am not saying inflation is not coming. It is.

          I am not saying there is not a huge fiscal problem. There is.

          All I am saying is I don’t see the wheels coming flying off right now. I am on the record saying so, and I will repeat myself: I do not see the problems coming around until 2018 (it could be as early as 2014, but I think there is enough going well to hold off the bond implosion until 2018).

        • Because the companies I talk do disagree with you. They are making money here. They love fracking. it’s giving them an edge in the global marketplace.

          Why isn’t this in the 10-Ks? Which companies show this in any of their filings?

          And when you look at earnings do you pay attention to see if there is any difference between the EURs and what the actual production data is implying? I prefer to stay away from the story telling and narratives and discuss the actual data. As I said, I have not seen any projects outside of the core areas that are self financing. Wherever I look I see an explosion of debt, shareholder dilution, and negative cash flows. The depletion rates are running quite high for most companies and I do not see how production from shale can remain increasing given the fact that all of that drilling has yet to get the Bakken production levels over the 150 bpd hurdle.

          And let me note that in the early stages of money printing companies can remain positive. But in the end the consequences of reality cannot be ignored for very long by those that want to survive.

          Even with a correction and all that, the US consumer is still insulated from oil price shocks because of domestic production. I am not saying there would be no price rise, of course there will, but it would break the bank (so to speak).

          Your banks are already broken. The Fed has huge amounts of worthless CDOs on its books and has a massive amount of treasuries at a time when it has driven rates to record lows. If rates go up a bit the Fed becomes bankrupt because it will have to write down its portfolio of assets. That does not protect the consumers.

          One of the good things that have happened over the past decade or so is that oil costs, as a percentage of the personal budget, have fallen. Our cars are more fuel efficient. Our homes are better insulated. Natural gas is an alternative. Because of this, consumers are better prepared for oil price shocks than we were even just a few years ago. I mean, look at last year: gasoline prices were flirting with $4/gal, but the US economy continued to grow at a decent (not great) pace. Each time before that, when gasoline reached the $4/gal (or it’s inflation-adjusted equilivent) mark, the economy tipped into recession.

          But the consumers are not prepared. Their homes are worth less than the mortgages on them. Their cars are leased or purchased by borrowing. One in five families is on food stamps. Natural gas is an alternative as long as shale producers continue to sell their product at a loss. That cannot keep going for very long.

          What was nice about last year, however, was we did not see price increases in other things. I doubt we’ll be so lucky this year. The stage is set for a rather broad-based commodity rally: the US consumer will continue to spend, helping to support US growth. China is showing signs of a rebound despite European trouble. Early signs from Europe indicate the EU may be stabilizing (no growth, just stable). SE Asia is looking better. Russia is looking better. Brazil’s recovery from their recession is looking good. US Industrial Production is still growing, although the pace of growth is diminishing. Construction as a whole continues its slow but steady improvement.

          The American consumer can’t handle price increases. S/he is broke at the low end and the consumers on the high end are being hit with tax increases that make them reluctant to spend.

          As commodities rise, so will prices. Food will especially rise after last year’s drought. Inflation combined with higher taxes will pinch the consumer and eventually tip us into a recession by year-end/early 2014.</b.

          But that means that the bond markets are toast. And if that is true you better be a lot more negative on the economy than you already are. With rates going up the government interest payments explode and deficits increase even faster. If the Fed plays its silly game the currency takes a hit and prices explode as private purchasers bail out of bonds.

          Oil prices will rise in 2013. Increased demand from China will help boost them. There may be a large international event that shocks supply (such as Israel attacking Iran or something along those lines). The spike won’t come from US oil demand.

          The US economy is on the brink of collapse. While it could chug along for a year or so the writing is on the wall and demand will not be going up much. And if Iran is attacked you could see $200 oil as long as the collapse is not too large.

          But my point here is when a good or service is produced domestically, the domestic consumers are relatively insulated from the shock. Lower transaction costs help limit the price gains. That is not to say there will be no price gains, there will be, but the level will be lesser. Similar to how the US has lower gasoline prices than, say, Korea.

          Oil trades in the global market. If prices rise for foreigners they will go up for you. As for price levels you need to look to supply and taxes. If the US has more refineries and lower taxes it should have lower gasoline prices. But even though they are lower the consumer is hurt by the change in the price just as much as other consumers in similar positions.

          • Vange>>>As I said, I have not seen any projects outside of the core areas that are self financing<<<

            Vange, I simply do not trust your assertions. You have stated time and again that very few Bakken wells have an IP of over 100. When I called you on that you moved the goalpost in some fashion.

            Here is a link to a Bakken site that puts the IP's for every well. http://www.milliondollarwayblog.com/

            Just google "Million Dollar Way." I have followed his site for a long time (Years). Very FEW wells of the thousands listed have IPs of less than 100.

          • Vange, I simply do not trust your assertions. You have stated time and again that very few Bakken wells have an IP of over 100. When I called you on that you moved the goalpost in some fashion

            They do have an IP well over 100. The problem is not IP but the depletion that takes the production level to less than 100 according to the data that Mark keeps referencing all the time.

            Here is a link to a Bakken site that puts the IP’s for every well. http://www.milliondollarwayblog.com/

            Just google “Million Dollar Way.” I have followed his site for a long time (Years). Very FEW wells of the thousands listed have IPs of less than 100.

            You have a hard time understanding the argument. The IP for most wells should be in the 800 to 1,500 bpd but the first two or three days of production are very volatile and cannot be used effectively for the analysis. To do a proper analysis you look at the first five days or so and average the production. A typical good well might have an IP near 1,500 but will have an average of 800-900 bpd over the first five day period. The problem is that this rate will drop to less than 130 bpd by the end of the first year and the well will not be producing a positive cash flow for more than 7-8 years. The question is related to the cumulative cash generated and how that compares to the total cash consumed in drilling the well. After you pay the financing costs, royalties, overhead, and production costs is there enough to generate a decent profit? The answer so far is no and I have yet to see any evidence to the contrary.

            In case you have forgotten, I was talking about the false narrative for shale gas when most people, including Mark were still all excited about its prospects. They have now figured out that their narrative was wrong. We now have a new narrative. “Yes, we were wrong about shale gas,” they tell us, “but just wait and see how profitable shale oil will be.” I do not believe in narrative. As with gas, I want to see the numbers for oil. High gas production did not produce positive cash flows for the producers. Why do we expect high oil production to give us a better result? Keep in mind that we already have history to guide us. All we need do is look to the Elm Coulee in the Bakken and we will see all that we need to see.

        • Gas prices are correlated that much to oil prices, if you just watch the charts. It’s our refinery industry and our distribution that makes gasoline more expensive than it has to be.

          In any case, U.S. gasoline consumption has been declining for some time, and every day thouands of old cars that got 15 MPG are being replaced with one that easily gets 30.

          Remember: gasoline and petroleum distillates are one of this country’s biggest EXPORT products.

          • Vange>>>You have a hard time understanding the argument. The IP for most wells should be in the 800 to 1,500 bpd but the first two or three days of production are very volatile and cannot be used effectively for the analysis. <<<

            This is a perfect example of you moving the goal posts. On the old Carpe Diem site, you repeatedly said that the IPs of most Bakken wells was less than 100.

            Watch the Million Dollar Way site for awhile. You will see just how many wells hit the 100k.

            MDW uses 100k as a rough benchmark of when wells become profitable. It takes a little more than that but it serves as a rough mark.

            I want to see your data on all Bakken and 3 Forks wells including the Canada side. If you want to send it to me we can work out a transfer plan. In other words, put up or shut up.

          • This is a perfect example of you moving the goal posts. On the old Carpe Diem site, you repeatedly said that the IPs of most Bakken wells was less than 100.

            I do not think so. The IPs have always been shown to be from the 800-1,500 range in the reports that I have cited. The less than 100 bpd figure comes from the data that Mark keeps citing. The fact that you can triple the amount of producing wells in a few years and still have trouble getting the average production to a reasonable level is a huge red flag that you are ignoring.

            Watch the Million Dollar Way site for awhile. You will see just how many wells hit the 100k.

            MDW uses 100k as a rough benchmark of when wells become profitable. It takes a little more than that but it serves as a rough mark.

            First of all, 100K of production is not enough to pay for a $9 million dollar well, its financing costs, and the royalties and other expenses that are a part of the business. Even if we ignored the other costs you can see that 100K of production only gets you around $7 million of revenue and leaves you $2 million short on the drilling costs. Add the lease and royalty payments, overheads, infrastructure costs, operating costs, etc., and you have a massive shortfall. You can imagine things to be a certain way but the SEC filings are showing that reality is very different.

            I want to see your data on all Bakken and 3 Forks wells including the Canada side. If you want to send it to me we can work out a transfer plan. In other words, put up or shut up.

            I do not have data on ALL Bakken and 3 Forks wells and certainly do not need it to see that the companies are reporting massive negative cash flows and are not self financing. As I have said time after time, you choose the companies and we can look at the 10-Ks and listen to the conference calls on their own.

            In other words, put up or shut up. Show us these great producers or stop pretending that they exist.

        • Gas was $.21 a gallon in 1946, average wages were $1.20 an hour. That calculates to just over 10 minutes of work per gallon.

          Average gas prices in 2011 were $3.50 a gallon, wages were $20.66 an hour. Gas costs just over 10 minutes of work per gallon.

          But that’s not all the story. In 1946 cars averaged under 15 mpg. In 2011 average fuel economy was 22.4 par gallon. So it cost the average driver about 33% less to buy gas for the same number of miles in 2001 than it did in 1946.

        • If I’m wrong post your data. Most of mine came from government websites.
          And I didn’t miss the point at all. The whole point of my post was that time worked per gallon was at worst a wash and when driving cost are considered we are far better off today.

        • Vange>>>All we need do is look to the Elm Coulee in the Bakken and we will see all that we need to see.<<>>As I said, I have not seen any projects outside of the core areas that are self financing. <<

          This is a variation of a statement that you have made time and again. I want to see your data and analysis on this. What are the core areas in the Bakken? How do you define those? What is the to-date production per well for every "Core" and "Non-core" well? I would especially like to see the data and analysis from "Core" and non-core wells drilled by the same company at roughly the same time.
          Which wells do you think will make EUR and which ones will not?

          • Vange>>>All we need do is look to the Elm Coulee in the Bakken and we will see all that we need to see.<>

            Oops, I meant to address this. What is the to-date production for every Elm Coulee well. I imagine you have it in a spreadsheet. Which ones will make EUR and which ones won’t?

          • Oops, I meant to address this. What is the to-date production for every Elm Coulee well. I imagine you have it in a spreadsheet. Which ones will make EUR and which ones won’t?

            The figure I cited showed that the production data was showing the ultimate return would be around 30% lower than the estimates from the producers. Unless you are a wildcat type the performance of any one individual wells drilled is not all that important because of the huge variation within the field.

          • This is a variation of a statement that you have made time and again. I want to see your data and analysis on this. What are the core areas in the Bakken? How do you define those? What is the to-date production per well for every “Core” and “Non-core” well? I would especially like to see the data and analysis from “Core” and non-core wells drilled by the same company at roughly the same time.
            Which wells do you think will make EUR and which ones will not?

            The core areas are those where you can get a few very profitable wells because of the geology. In the Bakken that seems to be parts of the dolomite and limestone formations that are not too bad and can yield the occasional profit. The Elm Coulee was one such prolific area. The trouble is that the field is now about done and production is collapsing because there is little recoverable oil left in place.

            As for the rest of the Bakken, the data that Mark cites does not paint a good picture. All of those billions used in the drilling of new wells have not done much to improve the average per well yield because the depletion rates are so high. This means that the Bakken production growth has little time left and in a year or two the fact that the peak is behind us will become obvious.

  3. Increased domestic oil production is a good thing…as was the veal served for dinner on the Titanic before it hit the iceberg.

    There are underlying issues here in the U.S. that make any cheerleading over this news a bit moot in my opinion. Fixing our still broken banking system, our decrepit infrastructure, our education system and cleaning our political house of the leeches that are sucking us dry, booting corporate influence out of our politics…etc…etc.. The scale is too heavily weighted to the negative. IMO.

  4. that’s with a 7 fold increase in drilling rigs since 2009…

    the Red Queen from alice in wonderland put this oil boom in persepective…”It takes all the running you can do, to keep in the same place”

    • the Red Queen from alice in wonderland put this oil boom in persepective…”It takes all the running you can do, to keep in the same place”

      That is only meaningful for those who pay attention to the depletion rates. Obviously our friends do not.

  5. Something happens, sooner or later, when oil crosses over $80…supply starts to ramp up, demand flatlines, and then starts to go down.

    It may take a few years, but I think we are building into a long, long term flatline in oil prices, like after 1979. This may last for decades.

    Vange says some shale oil drillers will lose money. I don’t doubt it. It is a boom, and money is pouring into the sector. Some will lose money, although production will keep going as long as argil costs are lower than marginal revenues.

    However, there are global gluts of capital. So plenty of money will keep pouring into energy production for the next 10 years at least. Of all kinds of energy. And ways to conserve. Remember, there are capital gluts, worldwide.

    No good idea lacks for financing today. Think about that.

    People just keep getting better and better at extracting fossil fuels. Think about that.

    I see long-term soggy oil prices.

    • Vange says some shale oil drillers will lose money. I don’t doubt it. It is a boom, and money is pouring into the sector. Some will lose money, although production will keep going as long as argil costs are lower than marginal revenues.

      No, what I am saying is that nobody is self financing. This makes the shale sector very similar to the tech sector where we had internet companies depend on a constant inflow of new capital to stay in business. Eventually the inflows will slow down, and when they do the bubble will pop.

      However, there are global gluts of capital. So plenty of money will keep pouring into energy production for the next 10 years at least. Of all kinds of energy. And ways to conserve. Remember, there are capital gluts, worldwide.

      You are confusing currency with capital. The two are not the same. We have a glut of money because the central banks are printing. But there is no glut of compressors, pipelines, drilling rigs, etc. And those are what is needed just to keep production in the shale sector flat.

      What really interests me is the services sector. I want to see if the smart guys reduce their capital investment and try to get themselves bought out in anticipation of the difficulties that will come due to the financing gluts.

      No good idea lacks for financing today. Think about that.

      That is why we got the housing bubble. Yet, it popped because it was not sustainable.

      People just keep getting better and better at extracting fossil fuels. Think about that.

      They have yet to make enough from the sales to cover the production costs. Think about that.

      I see long-term soggy oil prices.

      Anything is possible. If we get a major contraction oil prices could fall for a while. But I doubt that the patchwork ‘solutions’ will keep the day of reckoning for the currencies away for very long.

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