While the lackluster results emanating from the U.S. oil and natural gas industry profit-wise have proved disappointing since the middle of 2014, future developments paint a much brighter picture.
It is sadly ironic that the upward production breakout of both fossil-fuel giants ran headlong into demand limitations concurrent with increasingly “energized” exploration/production capability. These caused market prices of oil and natural gas to plummet meteorically.
Although the timing of the oil and natural gas price squeezes came about simultaneously, their cause is separate. In the case of oil, the following factors were paramount:
1) The oil shale breakthrough, in addition to massive Canadian oil sands discoveries occurred almost in tandem time-wise. While the economic world was recovering from the great financial crisis, the sudden welter of supply surplus drove the price per barrel down to less than half of the most previous level of more than $100 per barrel.
2) With the OPEC cartel refusing to cut back production in late November 2014, the world per-barrel prices of U.S. light West Texas Intermediate and Brent crude from the Middle East and North Sea continued their downward drop. Although natural gas, a by-product of oil production, had previously been flared off, the shale oil discoveries came about as coal was being squeezed out by U.S. climatological regulations; and natural gas took its place as an increasing powering source for electric utilities everywhere.
While the new demand/supply balance of both fossil fuels reached the bottom in late 2015, the following positive development for both oil and natural gas has recently been bursting forward. The major factor impact on U.S. fossil fuels in general is the Trump administration’s tempering of energy replacement renewables while emphasizing U.S.-based production. This has unleashed the following positives:
With U.S. oil demand per barrel in the near 20 million barrels per day level, the expanding shale sector, effectively benefitting from cost decline, is now wide open to increase its potential. In addition, the embargo on U.S. oil shipments had been removed in Obama’s last budget session. This has already instigated shipments of WTI to Southeast Asia where refineries are mechanically geared to processing the light U.S. WTI.
Natural gas has not only benefitted from its coal replacement, but as a needed raw material for the giant U.S. chemical industry. This is in the process of returning an increasing number of worldwide units to the U.S. due to domestic-ready availability and the much lower cost from American-based sources.
Also, the transformation of natural gas to liquids is now in process and should be ready for the much more costly equivalents in other parts of the world. Several ports are currently in various development stages.
If even a substantial part of these stated developments become reality soon, the U.S. oil and natural gas perspective should reach new records in forthcoming years, embellished by a friendly federal administration.
One of the main premises of President Trump’s upset victory last November was a solid promise of reversal of America’s manufacturing losses. Statistics reveal the 20 million manufacturing jobs existent on Jan. 1, 2000, had been cut in half as 2017 arrived.
Although an appreciable segment of those losses can be attributed to rapidly evolving technology, the bulk of America’s manufacturing sector meltdown is due to an overseas shift by the nation’s major conglomerates and multi-billion-dollar corporations.
Since the reality of free enterprise competition is based on the lowest cost of manufactured finished goods or components and acceptable quality-use by the buyer, the ability of neighboring Mexico and growing overseas manufacturing capability has won out over much of “made in the USA.”
An additional factor, in the case of huge corporations dependent on their quarterly profits announced to investors, is the cost/price relationship. As embryonic overseas manufacturing ability has become more sophisticated, many of the largest corporations have not only purchased needed requirements overseas, but have either acquired or built their facilities in foreign countries as the cost-price gap exceeded equivalent production in the U.S.
President Trump has made this return to America a major commitment of his administration. This may be the most difficult promise for him to fulfill since dictating the source of manufacturing can only work through much stiffer tariffs than exist today. But such protectionism likely will be met with counteraction as happened in the early 1930s when the U.S. congressional Smoot-Hawley legislation instigated a trade war. Historians attribute this legislative disaster as a main factor in the devastating depression that followed.
Additionally, the U.S. consumer sector, which comprises 68% of the U.S. world-leading gross domestic product, will react negatively if the forced result of bringing manufacturing back to America faces the 330 million Americans with substantially higher purchasing costs.
Whether poor trade negotiations allowed by previous administrations on import/export agreements were responsible for the U.S. manufacturing meltdown or not, this will be determined, implemented, enforced and accepted by the overwhelming majority of Americans.