Fifth largest oil producer, fourth largest gas producer

Attendees of EnerCom Dallas heard Federal Reserve Bank of Dallas Senior VP and Research Advisor Mine Yücel outline the state of the modern oil and gas industry.

Yücel noted that the U.S. shale revolution has truly pushed the country to the top of the pack among oil and gas producers. America is the largest gas producer in the world by a sizeable margin, producing almost 10 Bcf/d more than Russia. In fact, if they were individual countries, Texas and Pennsylvania would each be among the largest gas producers in the world, ranking fourth and sixth, respectively.

The U.S. is also among the largest oil producers in the world, currently in second place just behind Russia. However, this is primarily due to the OPEC production cut, as if Saudi Arabia were producing at the pre-cut rates it would be firmly in second place. Like in natural gas, Texas alone is large enough to be in the top five largest oil producers in the world.

According to Yücel, one of the most important transformations going on right now is in natural gas. Natural gas contracts are changing internationally, with increasing levels of spot market trade and shorter contracts. Increases in LNG supply have meant a more interconnected gas market is available, a situation that has never been seen before. This will be important for the U.S., as U.S. yearly gas production has been skyrocketing since 2007.The U.S. natural gas exports have grown more than fivefold in the past decade, and new LNG projects are likely to bring U.S. gas to an ever-growing market.

U.S. crude oil exporting is growing even more rapidly, rising from nearly zero to most recently 1.8 MMBOPD.  American refined products exports are also high, currently above 5 MMBPD.

Looking forward, uncertainty abounds. Yücel mentioned the golden rule of oil forecasting, “never put an oil price and a date together.” That being said, the market currently expects oil prices in the $50 to $60 range. Based on NYMEX futures, though, there is a significant range in possible future prices. NYMEX trading indicates investors are 95% sure 2020 prices will be somewhere between $37 and $100, so massive variability is possible.

Near-term downside risks include accelerated shale growth, a premature end to OPEC cuts, and output growth in Libya and Brazil. Upside opportunities also abound, however. Venezuelan production, already falling, may see declines accelerate as the country continues to spiral. Iranian sanctions may return, arresting one of the largest growth sources among OPEC members, and the currently strained relations among Middle Eastern countries may flare up once again.

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