First, some background on U.S. oil and natural gas resources: Start with gas. In 2000, U.S. supplies were estimated at about 1,000 trillion cubic feet (annual consumption: 22 trillion to 24 trillion cubic feet); now, estimates cluster around 2,000 trillion cubic feet, with some even higher. The increases mostly reflect shale gas, which was once believed too expensive to produce because it was packed tightly in formations. “Fracking” (injecting water into the formations to free the gas) and horizontal drilling (extending one pipe along the formation instead of drilling many vertical wells) lowered costs. Continue reading
Transformative price shifts and innovative technology combined with an aging existing infrastructure leave the US energy sector looking more like that of an emerging economy than a traditional developed one: And that’s a good thing.
Infrastructure in the energy sector is still built to serve an economy that looks more like the 1950s than 2012, with a transport sector almost entirely dependent on oil products and a centralized hub-and-spoke electricity system dependent on a blend of coal and nuclear with natural gas and renewable generation still in the minority. Continue reading
Gary Hunt, President of Scalable Growth Strategy Advisors, wrote on Sunday concerning the nature of higher gasoline prices. He provides the exact figures for the increase in gasoline prices that we all have noticed:
The impacts of higher oil and gasoline prices are beginning to ripple across the economy. Wells Fargo Economics reported today that higher energy prices increased the producer price index (PPI) by 0.4 percent in February 2012 which was the highest monthly gain in the PPI in five months. Wholesale gasoline prices were up for the second-straight month, increasing 4.3 percent, home heating oil was up 5.3 percent and residential electric power prices increased 0.6 percent.
Mr. Hunt explains, however, that energy prices overall have not one up as much as they could have because of the development of shale gas resources. He writes:
The growth in domestic natural gas production from shales has decoupled natural gas prices from global oil prices as supply exceeds demand helping to mitigate the inflationary impact of oil prices. As a result of the growth in natural gas supply availability, finished goods energy prices increased only 1.3 percent last month which is still a big increase but smaller than oil driven energy price increases.
Domestic oil production has also risen dramatically in the past two years (see the chart above). Here are some of the specifics:
- Texas. The Eagle Ford shale formation in south Texas contributed to gains in the state’s oil production, which averaged 1,425 thousand barrels per day (bbl/d), the highest level since 1997.