The Absurd Report

America is in a global struggle for energy security and many of us lack a full understanding of the oil and natural gas industry. API has assembled a primer to encourage a constructive public policy debate on meeting the growing energy needs of consumers and industry.

Sections include discussions of global energy demand, price increases, what consumers are paying at the pump, earnings, refinery expansions, the environment and energy security.

This report by American Petroleum Institute (API) consist of 32 pages with graphics and charts and can be read in full here…

I have taken the report and broken up into a multi part series and today we start with…

Part I: The Myth of “Big Oil” (As a Percent of Proven Reserves)

It is also important to understand how the energy world has changed. Forty years ago, world oil reserves were largely the domain of the investor owned, international oil companies (IOC), based principally in the United States. Most people today assume that international oil companies are little changed from decades ago, still sitting astride the bulk of these world oil reserves. That is no longer the case. Today, world oil reserves are 80 percent owned by the national oil companies of foreign governments, many formed during the past 30 years. Only 6 percent of world-wide oil reserves are now held by investor-owned oil companies.

Faced with such competition, the investor-owned oil companies have scaled up within this new world—principally through mergers and acquisitions—by creating ever larger efficiencies, greater technological and project management prowess, and substantially broader competitive access to capital markets.

Even the largest U.S. based international investor owned company accounts for just a small fraction of the world’s oil reserves and production.

Future Global Energy Demand

Recent concern about crude oil and gasoline prices underscores the link between energy and the economy. Most energy analysts agree that sustaining even modest economic growth worldwide for the next several decades will require massive new investments in oil and natural gas. This also presents a great opportunity for the renewable fuels that will be an important part of the future fuel mix.

Recent forecasts by the U.S. Department of Energy’s Energy Information Administration (EIA)estimate that sustaining a 4.1 percent rate of annual growth in the global economy to 2030 will require an expansion of 35 million barrels per day in global oil supplies. That is an increase of 42 percent. The growth in demand for natural gas worldwide is expected to be even larger, increasing by 64 percent by 2030.

Despite significant growth of renewables and improvements in energy efficiency, more than half of the world’s energy demand will be met in 2030 by oil and natural gas, as is the case today.

Diesel, Gasoline and Crude Prices

Until recently, gasoline and diesel fuel prices closely tracked the cost of crude oil. But over the last year the supply and demand picture has changed. Demand for gasoline has been met with strong supply fed by record refinery production and high levels of imports. By contrast, the market for diesel is much tighter. While production has been strong, supplies have been limited by weaker imports. The Europeans are exporting less to the United States, because they are keeping more diesel for domestic consumption.

Diesel prices also are higher today, because it is a more advanced, low-sulfur fuel. Such fuels help improve air quality but they are more expensive to refine. Today’s diesel contains less than 15 parts per million of sulfur, compared with 500 parts prior to 2006.

Average Price Increases Year to Date (cents per gallon) — January 1 to March 14

The price of West Texas Intermediate crude oil has increased by 92 cents per gallon for the period from January 1 through March 14th of this year compared to the same period last year. Diesel prices are averaging 89 cents more per gallon and gasoline 78 cents per gallon more.

Key Factors Affecting Markets

Economists like to say that it all boils down to supply and demand. But there are many factors
affecting the tried-and-true laws of economics – and those factors have contributed to today’s
high-demand, tight-supply world energy market.

For starters, demand is very strong, coming from mature economies like the United States and
Europe plus the developing economies of countries like China and India. And as per capita income rises in those developing countries, the demand for energy is expected to continue growing.

Tight supplies have been aggravated by political instability, resource mismanagement and weather. The Iraq insurgency, civil unrest in Nigeria and political uncertainty in Venezuela are among the examples. And hurricanes in the Gulf of Mexico have affected operations in both the United States and Mexico.

Finally, the decline in the value of the U.S. dollar against other countries has put American
consumers at a disadvantage. American consumers must now pay more for crude oil than countries with stronger currencies.

Part II Tomorrow

energy security, oil and natural gas, world oil reserves, gasoline prices, economy, global economy, crude oil, Iraq insurgency   

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