They Lie About Gasoline Prices - Society - EzineMark

Oil Production:

The commonly accepted myth in U.S. politics is that if there was more domestic drilling to produce more oil at home, gasoline prices at the pump would go down. It's a lie. In fact, there is a renaissance going on right now in domestic North American oil production as a result of new techniques (horizontal drilling and hydraulic fracturing) to tap into vast new resources of shale rock. The Bakken shale underlying 200,000 square miles of North Dakota, Montana and Saskatchewan is the best example. It holds about 400 billion barrels of oil.

We've known about this oil for years, but only recently have they found a way to get it out economically. According to analysts at Hart Energy, an oil industry observer, oil production from the Eagle Ford shale and the Permian Basin formation in Texas will be nearly as important as the Bakken.

The study showed that unconventional oil from those three shale deposits could add 730 million barrels of oil per year in seven years? a 37% increase over 2010.The Bakken formation is now producing about 114 million barrels a year, which is over 300% of what it was producing 6 years ago and represents nearly 8% of U.S. oil production today. For over 20 years, domestic U.S oil production has been gradually going down, and now, due to shale oil production it is trending upwards.

The Canadian oil sand is North America's largest recoverable oil deposit. It's a 54,000-square-mile swath of oily sand in the Athabasca basin of Alberta, and contains between 1.7 trillion and 2.5 trillion barrels of oil. With modern technology, recoverable reserves stand at 178.6 billion barrels. That makes it the world's second-largest oil reserve after Saudi Arabia.

It's also the number one source for U.S. oil imports.

Currently, there aren't enough pipelines to transportation enough oil to meet the demand in the U.S. and Asia. The proposed Keystone XL pipeline would double the volume of oil Canada could export to the U.S. to about 4 million barrels per day. This would represent about 44% of U.S. oil imports ? if it is ever built.

The Gateway pipeline proposed by Enbridge would carry about 525,000 barrels per day west from Alberta to ports on Canada's Pacific Coast for transport to Asian oil refiners. This would further open the huge and growing Asian markets to Canadian oil, but its future is also uncertain. Together, these two pipelines would open up over 2.5 million barrels per day of new production, and allow the oil sands region to more than double production in the next decade. Expanding access to existing markets in the U.S. and diversifying into Asian markets are important to enable this growth in production and to ensure Canadian producers receive competitive global prices for their products.

In summary, the U.S. and Canada will produce about 10 million barrels of oil per day in 2012, and production is projected to grow to about 12 million barrels per day by 2016.

What about oil consumption?

In 2009, the United States, Canada and Mexico consumed about 23 million barrels of crude oil per day. Historically, the highest rate of consumption was during 2004 and 2007 during which North America consumed about 25 million barrels per day. So, you can see that despite the growing production, we consume about twice as much as we produce. Therefore, North America will be importing oil for many years to come.

How does all this relate to the price at the pump?

Political rhetoric suggests that the price of oil and gasoline is based on domestic supply and demand here at home. Conventional wisdom suggests that if domestic supply increased, then prices would go down, right? After all, that's what happened to natural gas. A massive 40% increase in the production of natural gas (also from shale deposits) drove natural gas prices down by about 60%. However, one needs pipelines to transport natural gas, so it cannot be economically exported to global markets. Thus, we are stuck with extra supply, which drives down the price.

Oil, on the other hand, is economical to export. Oil tankers can take the products to almost anywhere, which means that the price of oil and gasoline is established by global supply and demand, not domestic supply and demand.

In summary, don't expect significantly cheaper oil and gasoline at the pump. Of course, if government would lower the exorbitant tax on gasoline, the price could come down some, but that is not likely to happen. Gas prices are more likely to increase than decrease, especially since the environmentalists and politicians want you to rapidly transition toward expensive "renewable" energy. These days government is subsidizing almost everything, but don't expect them to subsidize your cost of gasoline because they want you to pay more as an incentive to drive less, to buy small, expensive hybrid vehicles that nobody wants and to transition to renewable energy. For more on this topic, see my article?entitled: "Get Smart about Your Energy Future."

The one good thing about high oil prices is that the companies participating in the expanding production from oil shale and oil sands are going to make a fortune. Continental Resources (CLR), EnCana (ECA), and Marathon Oil (MRO) all have major positions in oil shale in the U.S. They should benefit from rising oil production in the long term. The same should happen with companies drilling for shale oil, particularly those with large positions in the Utica shale (in the northeastern U.S.), the Granite Wash (in Texas), and the Tuscaloosa Marine shale (in Louisiana and Mississippi). These include companies like Chesapeake Energy (CHK), Carrizo (CRZO), and Linn Energy (LINE). And, of course, the companies involved in the Canadian oil sands projects. As these companies benefit, so will their shareholders.

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Source: http://society.ezinemark.com/they-lie-about-gasoline-prices-18d84257082.html

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