Oil 101

From the Pipeline101 website I learned that there are already about 55,000 miles of pipe running crude oil in the US. Per the Tribal Energy and Environmental Information website: Within the United States, crude oil  is produced in 31 states and off the coasts of Alaska, California, Louisiana, and Texas. The top crude oil producing states are Texas, Alaska, North Dakota, California, Louisiana and Oklahoma; about one-fourth of the US’ crude oil is produced offshore  in the Gulf of Mexico. The Quoteoil.com website said - The bulk of proven remaining oil reserves in the world today are located in the Middle East (estimated 727 billion barrels); Central and South America are estimated to have 99 billion barrels, Africa about 87 billion, the former Soviet Union about 78 billion and Western Europe and China are estimated to have 18 billion barrels each, Mexico is estimated to have 16 billion barrels and India with 5 billion in reserve. Oil, coal and natural gas account for more than 85% of the energy consumed in the US (with oil accounting for nearly 40% of it).  

In my February 26 blog I told you that Wall Street speculators drove up the price of oil by 22% a barrel before it’s sold to be made into gas and per Sageworks 61.5% of what you spend at the gas pump goes to the oil company, 14% to the refinery, 12% to taxes, 8% for delivery, 2.5% to the credit card company and 2% to the gas station. On May 10, 2012 we heard that for the first time in 60 years the US is exporting more oil than its importing; some experts are estimating that we have 2 trillion barrels of oil in our country. In looking at the map shown many of the states where the Keystone pipeline is to travel already have oil, refineries and pipelines. I do understand Canada’s desire for the US to import more because it’s the shortest distance to making a profit.  I won’t bore you with more articles regarding the issues of the pipeline but do wonder why it should travel so far through the middle of our country to Texas instead of connecting with a closer state like the Dakotas. In my search for information I found that 2 new refineries are opening up (Arizona and North Dakota) which will create 600 jobs. I also discovered that the pipeline would add approximately 1,670 more miles of pipe in the US and cost about $7 billion. I personally don’t know why Texas (a strongly Republican state and top US producer) should get more of the refinery business and jobs than another state that is closer (which would cost us less) and would pose less risk to us as a nation. On March 24, 2012 it was reported that Salt Lake City, Utah residents are suing Chevron over oil spills.  

Per the Department of Energy’s September 2011 Import Highlights released November 29, 2011, Canada remained the largest importer of crude oil in September (2,324 thousand barrels per day [TBPD]); Saudi Arabia (1,465 TBPD), Mexico (1,099 TBPD), Venezuela (759 TBPD, Nigeria (529 TBPD), Colombia (510 TBPD), Iraq (403 TBPD), Ecuador (299 TBPD), Angola (283 TBPD) and Russia (275 TBPD). We also imported oil from Brazil, Kuwait, Algeria, Chad, and Oman. Total crude oil imports averaged 9,006 TBPD in September, which is a decrease of 16 TBPD from August 2011. The top 5 importing countries accounted for 69% of the US crude oil imports while the top 10 sources accounted for approximately 88%. On March 12 it’s said that the US is 3 million barrels a day less dependent on foreign oil than when the President was elected (each barrel = 42 gallons).

On May 10 Slate.com and United Press International had articles that said: Gasoline is made of oil so it sounds to a lot of people that if the US produced more oil domestically that gasoline would get a lot cheaper. But a new CBO report on gasoline prices contains this nice chart which shows that it's not so. Domestic oil production is irrelevant to oil prices because oil is a globally traded commodity making it no more expensive in importing countries than in exporting countries. Many oil-producing countries have adopted misguided consumption subsidy schemes so it's empirically true that high-production countries tend to have low prices but this is a coincidence not a strict causal relationship. Canada is a net oil exporter, Japan produces no oil, and the US is a middle case. International price differences are driven by the fact that some countries have high taxes on gasoline, some (like the U.S.) have low ones, and others have subsidies. What increased oil production does do is alter a country's trade situation. Canada imports a lot of consumer durable goods, so the more oil they export to the US the more Kitchen Aid stand mixers they can afford to import from Ohio. This can be a big deal (Argentina, for example, really needs to bolster domestic energy production to raise foreign currency reserves) but it's a different issue and it's not one the United States is facing.

I found an article on Bloomberg that shows the US standing in the world for the price of gas. This information along with a lot of other information that will follow makes me think that our problem is not how much oil we have but the number of refineries that process the crude oil. I was amazed to see that the only refinery in the northeast was in Delaware.