U.S. Oil Markets: Independence or Interdependence (Final Thoughts)
Final thoughts. We put a wrap on the topic of U.S. oil independence.
Introduction
On the heels of global conflict and tighter oil markets, we strived to provide the data and visual insights to determine whether the U.S. is truly energy independent in its oil needs. As we said at the beginning, the answer is its complex.
The U.S. is the #1 global producer of oil at 11-12 million barrels per day currently. But oil independence is nuanced. The U.S. imports approximately 3 million barrels per day in excess of the oil it exports leaving the country connected to global supply-demand flows.
Data Visualization
As part of the analysis we provided a number of data visualizations:
- U.S. Oil Market Infographic
- U.S. Oil Market Supply Breakdown
- U.S. Oil & Product Weekly Storage
- Federal Leasing, Permitting & Production
Summary
U.S. oil production from Federal leases is dominated by Lea and Eddy Counties in New Mexico.
Offshore Gulf of Mexico oil production from Federal leases is time consuming, complex and expensive. The average time from lease to 1st production for the top-10 offshore fields is 14 years.
Even before Russia invaded Ukraine oil markets felt tight. Years of low capital spending and ongoing base declines coalesced with the end of COVID and central bank induced demand drivers. Demand simply came back faster than supply.
Refining capacity appears tight. Brownfield or greenfield additions may be needed for ample swing capacity. API differences in what the U.S. produces versus what refineries prefer are visible in the data.
U.S. oil markets appear unlikely to materially exceed the prior high of 13 million barrels per day. Production growth has been concentrated in a handful of counties, some of which are inflecting at the 2nd derivative of growth. DUCs have been drawn down. Labor and materials are tight.
In short, U.S. oil growth akin to 2010-2020 is a thing of the past. Oil production gains will be slower and growth areas may become more concentrated.
U.S. oil production growth has been largely driven by the Permian Basin in recent years, in Texas and New Mexico.
The U.S. refining system appears tight. Additional brownfield or greenfield capacity could be necessary. Domestic production is largely high API gravity, requiring lower API gravity imports to meet the preferred U.S. refinery slate.
Onshore oil production on Federal leases has largely been driven by two counties in New Mexico, Eddy and Lea.
Offshore oil production from Federal leases is long, complex and expensive. The average time from lease to production for the top-10 deepwater fields in 2021 was 14 years.
Onshore and offshore oil production on federal leases appears dominated by a handful of large operators. Shell and BP offshore. EOG and Devon onshore.
There are indeed 9,000 +/- permits available to drill on federal leases, but i) there is low correlation historically between leasing, permitting and oil production; and ii) historical permit-to-drill ratios suggest 4,000 to 5,000 good drilling sites.
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