Forbes – This is the third of a multi-part series on the state of the main sources of energy in the US and how they compare globally. The series will cover solar, wind, oil & gas, coal, nuclear, and geothermal (so far) and will answer the same four questions for each.
1. How big is the U.S. oil and gas industry, and what is its growth trajectory?
The US oil and gas sector employs about 880,000 workers and contributes about $1.5 trillion towards the US gross domestic product, the growth of which has been heavily driven by shale production. Production of oil and gas hit record levels in 2019, with natural gas production exceeding 100,000 million cubic feet per day and crude oil exceeding 12,000,000 barrels per day.
The US has very recently moved from being a net importer of oil and petroleum products and natural gas to a net exporter. The fundamentals underlying these changes represent a seismic shift in world oil and gas markets.
The International Energy Agency (IEA) estimates that, by 2024, the US will export more oil than Russia and will come close to the exports of Saudi Arabia. The IEA goes further to estimate that, under stated policies, over the next decade, 85% of the increase in global oil production will come from the US. However, there is limited ability for the US to move in a way to influence oil prices as individual producers in the US are subject to anti-trust laws in the US that OPEC nations with state oil companies are not.
Domestic consumption of natural gas has been increasing as electric utilities move away from coal and pivot towards renewables and natural gas. However, short term growth in natural gas generation could plateau as renewables continue their epic rise.
The US Energy Information Administration’s 2019 reference case projects the US to become a major exporter of natural gas with growth highly driven by liquified natural gas (LNG) exports. Even though the current LNG market is soft, US producers are likely to remain competitive.
This is all, of course, absent of any meaningful action towards combating climate change. While most signs point towards continued oil and gas extraction to meet the world’s growing thirst for energy, steep reductions in CO2 emissions are required to stick to 1.5 or 2° C pathways, reductions that would likely mean a very different future for the US oil and gas sector.
2. Which US states lead in oil and natural gas?
Texas, living up to its stereotype, produces the most crude oil and natural gas of any other state, mostly driven by the Permian, Eagle Ford, and Haynesville regions. While Texas has a commanding lead in crude oil production, Pennsylvania and Louisiana are not far behind in natural gas production.
There is so much natural gas production (as a byproduct of oil extraction) in West Texas that there is often not enough room in pipelines to take it away. Gas prices have gone negative at times and Texas has also become the number one state for flaring/venting of natural gas, at times flaring more natural gas than homes in the state consume.
3. What are the biggest challenges faced by the oil and gas sector today?
Well over half of US greenhouse gas emissions come from burning petroleum products (in the transportation sector) and natural gas (in the energy sector). Globally, the charity CDP found that, in 2017, 100 energy companies were responsible for about 70% of greenhouse emissions via their products, including many oil and gas companies. While oil and gas companies are starting to move on climate, major climate legislation could force them to move much faster as, at the end of the day, their major product, fuels that, when burned, put carbon in the air must be greatly reduced.
Oil and gas companies are also finding it harder to recruit the talent that they need as more people entering the workforce are wanting to make a positive difference and fewer are seeing that in the oil and gas sector.
Electrified vehicles also have the potential to reduce the demand for traditional transportation fuels. While estimates for EV deployments vary widely, each year brings more bullish projections.
Concerns about the impact of the current coronavirus outbreak are affecting global (and thus US) oil and gas markets, but unless this virus takes a significant turn for the worse, the market effects are likely to be short-term.
4. How does the US oil and gas sector compare globally?
The US has moved from a distant third place in crude oil production to the number one producer in less than a decade, while also remaining the number one consumer of petroleum. The US is also the leading producer, importer, and exporter of refined petroleum products. In addition, the US produces more natural gas than any other country, and will likely soon move into the top three for liquefied natural gas exports.
The growth of the US oil and gas industry, production in particular, has been nothing less than explosive. Currently, US vehicle fleets are taking longer to turnover as we drive more miles, air travel is projected to continue to expand, and plastics consumption is slated to increase, all increasing demand for increasing petroleum inputs. And even electric utilities that have pledged to go 100% carbon-free in the next couple of decades are still trying to build natural gas plants in the short-term while they wait for the costs of lower carbon options to fall. With no major hurtles in the short-term, it appears continued growth is likely.