Below are highlights from a testimony given by John Kingston, President, McGraw Hill Financial Global Institute before the US House of Representatives Energy & Commerce Committee Subcommittee on Energy & Power hearing on ‘21st Century Energy Markets: How the Changing Dynamics of World Energy Markets Affect our Economy and Energy Security.’
“The amount of capacity that is on the sidelines because of political issues is staggering. One recent estimate put it at 4.5 million bpd. It starts with small countries like the South Sudan and Syria, and rises up to outages close to 1 million bpd in Iran and Libya. And this does not even take into account that political mismanagement of a country’s industry can and sometimes has given it a productive capacity far less than what it should be. If there was any sort of significant move toward quiet in these areas, since the costs of production in most of these regions are all significantly less than in the US, oil prices would come under even greater pressure.
“That said, while there are global factors contributing to the drop in oil prices, none compare to the scale of what the US shale revolution has done in just a few short years.”
“When talking about US competitiveness on energy, it’s important not to forget that natural gas is what gives the US an enormous edge. Because, it’s a pipeline delivered product, it is only slightly part of a global market. LNG shipments are not enough to tie it fully to other markets. So you first had natural gas break away from its loose correlation with oil back in 2009, and, even with the fall in oil recently, that relationship remains at a level that makes natural gas consumption in the US far more competitive than gas consumption in the rest of the world.
“Most important to note today is the duration of this revolution: six years and counting. In terms of economic transformation, six years is just a warm up. The changes in the US resulting from these added flows have just begun.”
“As far as how US crudes would fare abroad if they were allowed to be exported, it’s safe to say that some refiners probably have models, but they aren’t widely distributed. The rise in US crude oil exports to Canada, mostly via rail, indicates that Canadian refineries are finding US crudes to be attractive. If they weren’t, export numbers would be falling, not rising. But a cautionary tale lies in the effort in the late 90s to lift the ban on exporting Alaskan North Slope (ANS) crude to Asia. That battle went on for several years, and, finally, the ban was lifted. Asian refiners processed ANS crude for a few months, and simply did not find it competitive. So if you look at the export data, you see this surge in exports that last for a few months, and then it drops back toward zero.”
“Ultimately, a free market finds the best locations for any commodity to be consumed. So if a ban is lifted and US crude doesn’t go anywhere, that’s probably a signal from the market that the rest of the world is better off consuming non-US crudes. But the fact that the crude can be exported will help make a more competitive market. It’s always out there as, at least, a potential source of supply.”
“The oil and gas extraction industry showed job losses of 2000 for the month of January. This was the highest monthly loss since the recession. Moreover, regions that are heavily reliant on the energy sector could see a greater negative impact on employment and their surrounding economies.”
“However, the oil and gas sector, by itself, only represents 200 000 US jobs. This is just 0.14% of the 140 million jobs in the US economy. Energy capital expenditures of US$183 billion equal roughly just 1% of the US’s US$17.6 trillion GDP. And while the impact of oil prices will differ based on a region’s concentration, and the oil and gas industry’s supply chain, low oil prices, in the near term, is a boon for the overall economy, according to a recent report by S&P’s US Chief Economist, Beth Ann Bovino, and her US economist Satyam Panday.”
Edited from testimony by Claira Lloyd