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Saudi America Brings OPEC to its Knees

by | Dec 20, 2017 | Economic Affairs News

The recent U.S. shale-oil revolution did not subside in 2017. The surging crude production this year earned the nation the industry nickname Saudi America, as it’s surpassing the Middle Eastern oil kingdom as the world’s second-largest producer of Texas Tea. And most analysts concur: 2018 will just be more of the same.

Indeed, one of the biggest global news stories of 2017 was America’s rise to both energy independence and international energy leader.

With prices stabilizing well above $50 per barrel, U.S. companies are recovering from the bloodbath a few years ago, adding tens of thousands of jobs, and bringing the Organization of the Petroleum Exporting Countries (OPEC) to its knees. Could the oil cartel become obsolete in the next decade? At the very least, OPEC will have lost its stranglehold on the world.

Should the oil industry thank Presidents George W. Bush, Barack Obama, and Donald Trump? Hardly.

Thanks to private sector investment, research and development, and technological innovation, the shale revolution took off because of hydraulic fracturing, otherwise known as fracking. Yes, some Republicans shouted “drill, baby, drill,” but the bureaucracy of the state did not enable this exciting time in the sector.

How exactly did the U.S. morph into Saudi America?

Let’s examine the critical details in recent history.

The Road to Saudi America

One of the first tasks you must perform to fathom just how this revolution originated is to go back 10 years, to a time when peak oil was all the rage. A decade ago, the U.S. imported more than half of its petroleum needs. A decade later, it crashed to a meager 20% — the lowest it has been since the late 1960s.

Today, U.S. crude output is inching towards 10 million barrels per day (bpd), spiking as much as 15% in 2017. This comes as OPEC and non-OPEC oil producers have been forced to cap production at 1.8 million bpd until March 2019 to drain the global supply glut and help prices climb above $60. Some foreign oil companies cannot survive with $50-$55 prices, but U.S. oil businesses are profitable in the $35-$40 range.

Now, let’s rewind the clock to 2005. The U.S. Department of Energy created the Renewable Fuel Standard (RFS) program, an objective to achieve a reduction on reliance on foreign crude with corn-based ethanol. Unfortunately for statists on both sides of the aisle, the central planning measures were not exactly successful. In fact, even with the doubling down of the RFS program in 2007, ethanol has been a crony-based disaster.

Big Ethanol is only around because of government subsidies. It is so unsuccessful that if motorists are coerced into using ethanol, then they would endure $13 billion in increased annual fuel costs. In a truly free market, Big Ethanol would fade away into the dustbins of history.

What changed? Fracking and horizontal drilling.

Mark Perry of the American Enterprise Institute (AEI) summed it up nicely in a U.S. News & World Report op-ed in October:

“America’s shale revolution has actually probably done more to achieve the twin goals of the Renewable Fuel Standard program – reducing reliance on foreign oil and carbon dioxide emissions – than has the force-feeding of ethanol to American consumers.

The Renewable Fuel Standard is a perfect example of a government policy that is making America poorer, not richer. If Trump is serious about draining the Washington swamp and making America great, he has to stop caving in to politically powerful swamp inhabitants like Big Ethanol and stand up for the millions of Americans who elected him.”

Simply put: the government attempted to centrally create an energy solution, but it failed. It was through the free market’s incredible breakthroughs in extraction technologies, and society’s freedom to try, to succeed, and to fail, as economist Milton Friedman aptly averred.

Fracking Helping the Planet

The left lost its collective mind when President Trump announced in June that the U.S. would be leaving the Paris Accord. Leftists and globalists shrieked that the planet was doomed, and an apocalypse was imminent because the U.S. exited the agreement.

What is interesting, though, is the nation’s environmental record in the 21st century. The media would have you believe something different, but the U.S. has been doing a tremendous job since 2000 without the government.

Even without the pact, total CO2 emissions have declined to their lowest levels since 1992. Also, the U.S. has seen the most substantial reductions in CO2 emissions in the last 16 years with more than 600 million tons – it surges to 800 million tons over the previous decade.

The left may detest fracking, but it has proven to be one of the most cost-effective, eco-friendly methods of taking natural resources out of the ground. This was even conceded by the Obama administration in August 2016.

Energy Secretary Ernest Moniz said at a field hearing in Seattle:

“The increased production of oil and natural gas in the United States has, obviously, been a major story in terms of our economy, and also our environment.

The natural gas boom, in particular, has led to the displacement of high-carbon coal with low-carbon natural gas producing fewer emissions.”

Consumers can also expect to pay the lowest natural gas prices since 1999, which should please the neo-McCarthyites since natural gas is a major export for Russia.

Shale Revolution Making the U.S. richer

Americans are saving money at the pump. Except for the slight bump in gas prices in September, the average gallon of gasoline has plunged to about $2 over the last two years.

And that isn’t the only benefit for the nation and the globe.

The U.S. is polluting less. The world is not beholden to OPEC. Hollywood can no longer utilize contrived, archaic oil conspiracy plots for its pictures (“Three Days of the Condor,” “The Bourne Supremacy,” “Syriana,” “The Constant Gardener”).

Saudi Arabia is slowly losing its influence on the world stage. Perhaps this is one of the reasons for the series of reforms in Riyadh. Russia, meanwhile, is an energy behemoth – but the U.S. is creeping up on Moscow.

Who knows how long the shale-oil revolution will linger? With oil prices likely edging higher in 2018 and 2019, U.S. firms will take advantage. Barring some unforeseen circumstances – outages, inventories, OPEC compliance – Saudi America will help bring about OPEC’s demise, and the sooner, the better.

On Earth Day 2018, let’s rejoice in the rise of fracking!

What do you think about the shale-oil revolution? Give us a call on our LIVE Author chat line to ask us a question or tell us what you think!

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