America’s Oil and Gas Export Delusions
The true hoax of this energy transition is the idea that the U.S. has unlimited oil and gas that is just waiting to be produced as soon as those tree-hugging liberals stop standing in the way.
Did you hear that the Republicans have threatened Europe that if they don’t buy more U.S. oil they will face tariffs?
"I told the European Union that they must make up their tremendous deficit with the United States by the large-scale purchase of our oil and gas," Trump said, "Otherwise, it is TARIFFS all the way!!!”
Apparently these people believe that there is an ocean of “liquid gold” in America which is just waiting to be shipped abroad to any country that gives into the American threats of “or else?” The problem with this approach is that the odds are U.S. oil production is going to decline during the next four years. Willful ignorance and political grandstanding certainly appeals to a certain portion of the population but what those people are going to learn is that the true hoax of this energy transition is the idea that the U.S. has unlimited oil and gas that is just waiting to be produced as soon as those tree-hugging liberals stop standing in the way.
Now, back in reality, is Europe even able to make big new purchases of U.S. oil and gas?
"Europe is taking close to its maximum capacity for U.S. crude, meaning there is little scope for stronger imports next year," said Richard Price, oil markets analyst at Energy Aspects. He also said refinery closures in Europe in 2025 won't help increase imports.”
The U.S. is setting itself up for some epic embarrassment when it comes to both oil and LNG (liquefied natural gas) exports as the leaders of the country engage in some world-class magical thinking on the current U.S. crude oil industry and the future of LNG. Most of the recent focus on increasing energy exports from the U.S. has been about LNG, but now apparently the Republicans expect this with oil as well. This will not happen, but just like the current boom in planning to build far more LNG export capacity that will ever be utilized, the U.S. already went down a similar path for oil exports with plans for four new crude oil export terminals. So far only one of those planned projects has received a permit: the Seaport Oil Export Terminal (SPOT).
I first wrote about the SPOT in 2022. It is a project of Enterprise Product Partners, a major midstream oil and gas company. If the U.S. was suddenly going to start doubling its exports of crude oil to Europe as the President-elect seems to think is possible, it should be looking really good for the SPOT right now. Let’s see how that is going.
SPOT Check
In 2022 I concluded that the future of the SPOT was not bright saying, “The SPOT export terminal perhaps made sense in 2019 when Rystad was predicting a big and bright future for U.S. shale. Now it is likely to be a stranded asset…”
One of the things I based that on was the analysis that “they [Enterprise Products] expect the U.S. will export 8 million barrels of oil per day by 2025” which was highly unlikely as it was clear that U.S. shale oil production would not reach the levels being predicted. And now here we are getting ready for 2025, let’s see how close the U.S. is to reaching the export levels predicted by Enterprise.
Right around 4 million barrels per day in 2024. So they were only off by 4 million barrels. That would seem to weaken their argument for the need for this project.
But the SPOT was approved to be built by the Biden administration in April and Enterprise assured everyone that they would have the contracts lined up to make their final investment decision (FID) by the end of 2024. As 2024 comes to an end, we have not gotten any word on that FID yet, and there is a good reason for that.
First up, just as we are seeing in the LNG export industry, the rosy investment estimates used to make the projects look good always end up being a fraction of the real costs.
“SPOT, proposed for a point 30 miles off the Gulf coast in 2019, is the only Texas deepwater project with its government approvals. But its cost has soared to about $3 billion, two industry experts said, from an original estimate of $1.85 billion for Enterprise.”
So this company missed its export volume prediction by 4 million barrels per day and the project cost estimates have almost doubled before it's even begun. As long as they have customers everything should be fine, right?
“...it [the SPOT] has lost Chevron as an early backer because of the regulatory delays to secure a license, and Canadian oil pipeline operator Enbridge has released its option to take a stake in SPOT, Enterprise said.”
The customers have not materialized. And why would they? There is no need for this project as the U.S. has plenty of existing crude oil export capacity, it isn’t expected to meaningfully grow crude oil production in 2025 (and some expect production declines), and the SPOT would charge higher prices than existing facilities. But the real issue that will doom this project and the other proposed projects is that the ocean of “liquid gold” promised to the American people by the incoming Republican administration simply isn’t there. You can’t export what you don’t have.
Take a look at the graph below. Does that look like an industry about to increase from 13 million barrels per day to 17 million? If so, polish up your resume and submit it to the new administration as you might as well monetize your stupidity while you can.
Source: EIA
However, we could certainly increase crude oil exports by taking the oil currently used by the American public and selling it to other countries. As I explained in 2022 there were three possible ways for the U.S. to increase crude exports by millions of barrels per day and “The first would be simply to take the oil currently being supplied to U.S. refineries and export it. This would send domestic gasoline prices skyward and crash the economy.” And despite what many seem to believe, tariffs won’t solve that problem. However, it's worth noting that this is the current business model for the US LNG export industry, which is expected to raise prices for Americans when they sell American gas to other countries instead of Americans.
The other two possible paths to achieve huge increases in U.S. crude oil exports are even less likely than option 1 (exporting 4 million barrels per day of Canadian oil or increasing U.S. oil production by 4 million barrels per day.)
To be fair to the people believing there are large increases in U.S. crude oil exports in the future, this same thinking is the basis of the current business model for the U.S. LNG export industry. Those current vast LNG export plans are likely to suffer the same fate as the wild crude oil export plans that led to the SPOT being conceived. I’ll be writing about the current magical thinking in the North American LNG export industry in the near future.
Back in April one investment analyst summed up the situation for increasing U.S. crude oil exports.
"There are a lot of gray areas right now with export projects," said Zack Van Everen, an oil analyst at energy investment banker Tudor Pickering Holt & Co
But are there? It was pretty clear that there was no need for the SPOT project a couple of years ago.
Over the years I’ve been critical of the media hyping the prospects of the LNG export terminal for the company Tellurian. The company and its CEO got glowing profiles in the Wall Street Journal and New York Times talking about his brilliant vision. Hell, even his $220 million ranch got a profile. The SPOT is currently facing a situation Tellurian tried and failed to overcome. Permits don’t guarantee customers which is something I pointed out on Twitter.
We were assured Tellurian was the next big thing by the media. And yet the company got sold off for parts and the bank took back the Colorado ranch which eventually sold in bankruptcy proceedings for $28 million.
As 2024 comes to a close, Enterprise is learning the lesson that permits are nice but contracts are better.
Now if you were hoping to get the Liquid Gold Set from the Trump Store to celebrate the coming wave of energy dominance you have been promised, I have some bad news for you as it is “Out of Stock.”
It is going to be interesting to see what happens in the next four years as America learns that when it comes to the promises of endless "liquid gold" to be exported to the world, it is also Out of Stock.
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