PROTECTING SMALL BUSINESS, PROMOTING ENTREPRENEURSHIP

U.S. Energy Production and Exports on the Rise

By at 18 December, 2018, 1:25 pm

by Raymond J. Keating-

No matter the short term price changes and accompanying reactions in the market, the story of American energy production has been the most significant economic plus for the U.S. economy for some 13 years now.

For good measure, while trade has been an area of policy indifference or troubling protectionism for a decade now, the trade story on the energy front has been one of expanding opportunities for U.S. businesses and workers.

On the resources and production front, the U.S. Energy Information Administration (EIA) just reported that proved reserves of both crude oil and natural gas reached record levels in 2017. The EIA added, “Both U.S. proved reserves of crude oil and natural gas are approximately double their levels from a decade ago. These new proved reserves records were established in 2017 despite production of crude oil at levels not seen since 1972, and record natural gas production.”

Proved reserves for crude oil increased by 19.5 percent in 2017, with crude oil production up by 6 percent. As for natural gas, proved reserves increased by 36.1 percent, with production up by 4 percent.

By way of explanation, the EIA noted, “Proved reserves are estimated volumes of hydrocarbon resources that analysis of geologic and engineering data demonstrates with reasonable certainty are recoverable under existing economic and operating conditions. Reserves estimates change from year to year as new discoveries are made, as existing fields are thoroughly appraised, as existing reserves are produced, as prices and costs change, and technologies evolve.”

The key point comes at the end of this statement. Technology certainly evolves. Indeed, that’s what happened in recent years, with innovation and technological development occurring in areas like hydraulic fracturing and horizontal drilling.

As the EIA noted, “Both U.S. proved reserves of crude oil and natural gas are approximately double their levels from a decade ago. Prior to 1997, natural gas and crude oil reserves had been declining since the 1970s (Figure 1). In 1997, the downward trend for natural gas reversed because of innovations in horizontal drilling and hydraulic fracturing techniques that successfully increased natural gas proved reserves and production from shale formations. In 2008, the downward trend for crude oil reversed when innovations in horizontal drilling and hydraulic fracturing were applied to tight oil-bearing formations, such as the Bakken Shale of the Williston basin. The upward trends have continued, and both crude oil and natural gas proved reserves reached new U.S. record levels at Year-End 2017.”

Meanwhile, the EIA also has recently noted changes on the trade front when it comes to energy. They key point is the expansion of exports due to increased domestic production.

For example, the EIA highlighted:

• “U.S. crude oil production has increased in recent years, recently setting a record of 11.5 million b/d in September, while U.S. crude oil imports have decreased. After averaging a record high of 10.1 million b/d in 2005, gross crude oil imports fell to an average of 7.3 million b/d in 2014. Since then, annual crude oil imports have increased slightly, most recently averaging 8.0 million b/d in 2017.”

• “At the same time, U.S. refinery runs have been at record-high levels. The increase in refinery output of petroleum products has outpaced growth in U.S. consumption of petroleum products such as distillate fuel oil, gasoline, and propane, leading to an increase in petroleum product exports.”

Throughout the first nine months of 2018, crude oil exports were up markedly from the same period last year (for example, September 2018 exports were up by 45 percent versus September 2017).

On the natural gas front, the EIA has reported:

• “EIA projects that U.S. liquefied natural gas (LNG) export capacity will reach 8.9 billion cubic feet per day (Bcf/d) by the end of 2019, making it the third largest in the world behind Australia and Qatar. Currently, U.S. LNG export capacity stands at 3.6 Bcf/d, and it is expected to end the year at 4.9 Bcf/d as two new liquefaction units (called trains) become operational.”

• The EIA touched on the expansion of LNG export facilities since exporting began in February 2016, adding, “U.S. LNG exports continue to increase with the growing export capacity. EIA’s latest Short-Term Energy Outlook forecasts U.S. LNG exports to average 2.9 Bcf/d in 2018 and 5.2 Bcf/d in 2019 as the new liquefaction trains are gradually commissioned and ramp up LNG production to operate at full capacity.”

Through the first six months of 2018, LNG exports were up substantially. The EIA noted, “U.S. exports of LNG through the first half of 2018 rose 58% compared with the same period in 2017, averaging 2.72 Bcf/d.”

But it’s not just about oil and natural gas. The EIA reported in April that U.S. coal exports jumped by 61.7 percent in 2017. That was the first increase since 2012. As the EIA explained, “The United States exported 97.0 million short tons (MMst) of coal in 2017, a 61% (36.7 MMst) increase from the 2016 level. Exports to Asia more than doubled from 15.7 MMst in 2016 to 32.8 MMst in 2017, although Europe continues to be the largest recipient of U.S. coal exports.” For good measure, U.S. coal exports through the first six months of 2018 were up by 31.7 percent versus the same period last year.

Finally, it must be noted that contrary to many assumptions, the energy business again is overwhelmingly populated by small businesses. Consider the share of employer firms in key sectors (according to the U.S. Census Bureau (2015)):

• 89.6% of employer firms among oil and gas extraction businesses have fewer than 20 employees;

• 77.3% of employer firms among drilling oil and gas wells businesses have fewer than 20 workers;

• 80.7% of employer firms among support activities for oil and gas operations businesses have fewer than 20 employees;

• 58.2% of employer firms among oil and gas pipeline and related structures construction businesses have fewer than 20 workers;

• 51.5% of employer firms among oil and gas field machinery and equipment manufacturing businesses have fewer than 20 employees;

• 64.0 percent of employer firms in coal mining have fewer than 20 workers;

• 69.4 percent of employer firms in the support activities for coal mining sector have fewer than 20 employees;

• and among coal and other mineral and ore merchant wholesalers, 82.4 percent have fewer than 20 employees.

U.S. energy production and exports largely have been a good news story for an extended period of time, and much of this story has been written by and has benefited small businesses and their employees.

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Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council.

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