What still is hardly appreciated is House SpeakerPaul Ryan’s leadership in consummating the controversial “end to the fiscal year budget.” This has opened the U.S.-produced West Texas Intermediate crude oil to global penetration — never before even imagined prior to the fracking breakthrough.
Not well known is light condensate West Texas Intermediate is preferred in many parts of the world due to its limited refining needs as compared to the heavy Brent crude dominating world production. The latter is more readily available globally and preferred by some large refineries that are better equipped to handle the more intensive refining methods necessary for conversion to such finished derivatives as gasoline, diesel, jet fuel, and heating and air-conditioning providers, etc.
With only Nigeria and Norway primarily competing with the U.S. for the “lightweight” world market, a veritable boom is in the making for U.S. WTI producers. It’s already underway and should reach high-volume proportions by the end of 2016.
Pricewise, WTI always has been cheaper because of the relatively limited exposure necessary to the refining process. Therefore, Brent crude always was preferred as an import by U.S. refineries that made substantial profits by buying at low, unrefined costs, but selling the subsequent derivatives at high world prices. But with America’s huge volume of West Texas Intermediate shipped worldwide, not heretofore in high volumes, this price difference may be inverted, with cheaper WTI made available where it had never before penetrated.
Even the shipping process will be relatively simple since only the expansion of port outlets and a much greater number of tankers will have to be made available as this new bonanza hits its stride.
While today’s incredibly low prices for worldwide crude oil will give the advantage to Mideast low-cost producers such as Saudi Arabia, Iran, Iraq, Kuwait and United Arab Emirates, America will gain undisputed world leadership of light crude as lower-cost fracking technology becomes readily available in the future.
Although the once elevated price per barrel of $100 (which broke in 2014) seems out of reach, substantially lower prices from drilling rig manufacturers and technical service providers have lowered the break-even cost to the $60 range, far below the $75 to $80 price that previously existed.
Texas employment nosedive
While the low multimillions of U.S. jobs created in 2015 were less than half of those following the “Carter Era inflation” Reagan comeback in the early 1980s, a disproportionate number of high-paying new U.S. jobs had been created in Texas and were centered on all facets of the energy industry.
These included the tens of thousands hired to implement hydraulic fracking, new site exploration, transportation and refinery expansion. Two of the “hottest” new shales, Eagle Ford and Permian, also were located within the boundaries of the Lone Star State.
When adding in the fattening employment roles of such technical services and drilling providers as Halliburton, Baker-Hughes and Schlumberger for starters, it’s easy to see why Texas was No. 1, not only in new job creation but also was tops in the highest-paid daily jobs available in the U.S., in the past few years following the great financial recession of 2008-2010.
Furthermore, despite the early job losses incurred in the Gulf of Mexico deep-sea drilling arena due to its greater cost of conversion, Texas also has become the hope of new seaports. These are being built for eventual massive shipments of liquid natural gas and the subsequent outlet for light WTI, now available worldwide as the result of the lifting of the 1974 Nixon oil export ban.
But an unfortunate result of this booming post-recession employment surge, starting in 2015’s second half, are the tens of thousands of job reversals. These job reversals were the result of the 70% drop of oil prices per barrel from the $100 mark achieved in mid-2014. These reversals have started to manifest themselves in increasingly aggressive numbers.
At such an employment dissolution rate that already is reaching new heights in the first quarter of 2016, it’s becoming unpleasantly apparent tens of thousands of energy jobs created during the fracking surge beginning in 2008 are falling by the wayside.
But the end is not yet in sight as a combination of unexpectedly low oil prices has combined with the ever-stricter imposition of Environmental Protection Agency regulations. The latter are bent on making fossil-fuel development, including oil and natural gas, more difficult to extract at a time when global prices are plunging.
Barring a reversal of U.S. government restraints and a more rational universal oil price structure, this unemployment turn is destined to get worse before it gets better.
Good news for natural gas
Since the 1974 Nixon oil embargo restraint lift has opened up a worldwide market for America’s WTI, substantial export quantities already are being shipped in the nascent stages of 2016.
Although Nigeria and Norway also produce relatively small quantities of this “easy-to-refine” light sweet crude oil condensate (as mentioned earlier), these are no match for the unlimited capacity available from the U.S. fracking capability.
But an even bigger surprise awaits America’s huge preponderance of natural gas, most of which had previously been flared off from U.S. oil production due to the lack of transportation to foreign markets, as well as storage capacity and minimal pricing. This now is in the process of dramatic change as the literal destruction of coal usage in utility expansion and as a resource in almost any power usage continues unabated.
As construction of conversion facilities and export port launching bases for liquid natural gas are in various stages of completion, natural gas also is finding major demand emanating from America’s huge chemical industry of which liquid natural gas is a critically important component.
With U.S. natural gas’s inordinately cheap prices and hyper-availability stateside, the giant chemical industry is bringing substantial divisions back to the U.S. due to both cost advantage and ready availability.
Although school still is out regarding the volume and prices that natural gas can look forward to in the months and years ahead, overseas prices, which range from $10 in the United Kingdom, to $12 in Japan and China and Central Europe, compared to $2.00-$2.50 in the states, it’s a sure bet prices, volume and revenue generation are bound to substantially leap forward by the second half of 2016 and the years thereafter.
While the proof of natural gas potential lies in the actual happening, a multitude of positives along with the unusual optimism by expert analysts supports an achievement waiting to happen.
The early question yet to be answered is how quickly these current multitudinous benefits manifest themselves in future months and years to benefit U.S. industry totals and revenues.
The U.S. global trade deficit
When poring over and analyzing America’s overall 2015 foreign trade scenario, it becomes readily apparent the U.S. has been stuck in an annual goods and services deficit of more than $500 billion since the end of the recent great financial recession.
In 2015 this was comprised by deficits of $758.9 billion, made up of $2.272.8 billion in imports, offset by $1,513.9 billion in exports. Both imports and exports generated slightly less revenues from previous years, but not materially different from the previous five years of post-recession activities. Domestic oil production substantially decreased crude oil and derivatives’ imports due to the “fracking miracle.”
America’s previously accelerated domestic export surge has largely been offset by the soaring U.S. dollar, which has made America’s manufactured and agricultural goods less competitive on the world markets.
With the negative imbalance of trade being injected into the current political debate, China sticks out like a sore thumb. In 2015, U.S. imports from Beijing amounted to $486.9 billion, while exports to China fell by $7.5 billion to $116.2 billion.
Although China has become the “whipping boy” in America’s global trade imbalance, it should be noted a substantial amount of the huge import revenues from China comes from American-owned or -contracted companies having transferred production bases to China.
This greatly accelerated trend of moving the U.S. manufacturing base abroad recently been shifted to Mexico. But China’s ability to be cost-effective and reasonably acceptable quality-wise as well as delivery reliable would indicate maintenance if not an increase as America’s main import provider.
Political election year promises of 45% tariffs for goods from China are a nonstarter since major U.S. corporations would be gravely impacted. Worse, this would reignite the “Smoot-Hawley” imposed trade wars that largely contributed to the outbreak of worldwide depression in the early 1930s.
With the all-time-high-valued dollar acting as a deterrent to American exports, within a global economy showing few signs of overall improvement, it’s doubtful the 2016 world trade aspect of America’s gross domestic product will change perceptibly in the foreseeable future.
