U.S. Production is Protecting Domestic Markets, Consumers

Dean Foreman
Posted September 19, 2019

At a time of energy uncertainty in the world, the U.S. natural gas and oil industry is producing at levels that have helped cushion domestic markets and American consumers against global supply disruptions that once would have put severe pressure on our economy here at home.

Each final month of the quarter marks the simultaneous release of API’s Monthly Statistical Report (MSR) and quarterly Industry Outlook, and this quarter has offered some remarkable milestones and insights – at a critical time for the world:

• August brought a new record for U.S. production of crude oil (12.3 million barrels per day, mb/d);
• Natural gas liquids production of 4.8 mb/d was a sustained record; and,
• Even as domestic refineries ran at their highest capacity utilization rate so far this year, the U.S. petroleum trade balance improved by 1.5 mb/d compared with August 2018, due to higher exports and lower imports.

Throughout it all, the prices for oil and motor fuels remained below their levels of one year ago, and petroleum inventories grew year-on-year for the ninth consecutive month. 

As an uncertain oil supply disruption has affected Saudi Arabia, knowing the state of U.S. petroleum markets becomes even more critical. In MSR, API provides the earliest monthly estimates based on its weekly surveying of 90% of the U.S. industry.

The API Industry Outlook for the third quarter of 2019 highlights where energy, economic and environmental progress have coincided – and there has been important progress recently.

• U.S. LNG exports have delivered cleaner and reliable energy, produced with among the very best environmental standards, to 35 nations so far in 2019. U.S. exports of liquefied natural gas (LNG) reached nearly 4.8 billion cubic feet per day (bcf/d) and could double again by 2025, according to the U.S. Energy Information Administration (EIA). The International Energy Agency notes that natural gas reduces CO2 emissions globally by more than half when used in place of coal, which is a main alternative fuel among many LNG-importing countries.
• Growing oil and natural gas production is one of the energy revolution’s key outcomes. EIA reported that U.S. production of oil and natural gas production both grew by more than 8.0% y/y in the third quarter as low breakeven prices and strong productivity persisted, especially in the Permian basin and Bakken formation.
• U.S. refinery performance has continued to be advantaged by domestic oil production. Despite a decrease in the number of U.S. refineries to 131 this year from nearly 150 in 2010, total refining capacity increased by 6.8% over the period. In fact, this capacity has been utilized more effectively over time, and this in turn has spurred lower crude oil imports into the U.S. and increased exports of both crude oil and refined products.
• With improvement in the petroleum net trade balance, the U.S. has advanced toward becoming a net exporter of total energy. This is an important milestone that the EIA projects will be reached before the end of 2019.
• With the International Maritime Organization’s new and more-stringent global sulfur fuel specifications kicking in on January 1, 2020, we take stock and find that U.S. refineries are well prepared for the changes, which offer great environmental benefits but also could generate a large shift among fuels.
• New in-depth analysis. As we recently discussed in Natural Gas: Foundational to U.S. Electricity Generation, natural gas has generally led to lower energy-related carbon dioxide emissions and lower electricity prices across the nation. When we compare which states saw their average real electricity rates increase or decrease between 2010 and 2018, an elegant pattern emerged (API Team calculations based on the U.S. Energy Information Administration’s State Energy Data System):

• Electricity prices decreased in the majority of states that increased their share of natural gas-fired generation relatively more than they increased their share of wind and solar generation combined. 

• Conversely, electricity prices increased in majority of states that increased their share of wind and solar generation relatively more than they increased their share of natural gas generation. 

• Another new in-depth analysis. U.S. exports of liquefied natural gas (LNG) – growing to a record 4.8 billion cubic feet per day (bcf/d) in the third quarter of 2019 – have been a catalyst for incremental new natural gas resource development, U.S. pipeline and natural gas processing investments and the U.S. economy. In our analysis on delivering the second wave of U.S. LNG mega-projects, we discuss the challenges posed by the need to execute an unprecedented and geographically-concentrated slate of multi-billion dollar capital projects.