Blueprint for resource supremacy
The current cost/price inversion has temporarily slowed U.S. “fracking” production, which had nearly tripled U.S.-based oil production from 3.2 million barrels per day to 9.4 million bpd in the past four years.
This has been accomplished by tapping into barely 10% of the oil and natural gas potentially available under private, as well as massive U.S. federal territory.
When looking into America’s economic future, a fast-growing world population expected to increase by 50% will likely generate a crude oil demand from 90 million bpd to at least 130 million bpd by 2030. And when examining the peak growth in crude oil potential by that time, even the most optimistic global geologists do not envision significant additional oil production outside America that could even begin to provide such needs, even fractionally in the next 15 years.
Saudi Arabia’s five giant-sized oil-field centers, generating more than 90% of the Saudis’ current production, are presumed to have been two-thirds depleted by now. This presumption is based on opinions expressed by former Aramco geologists who with others have been barred from verifying Saudi Arabia’s claims since the Arab/American Oil Co. was nationalized in the early 1970s.
Russia’s many vast oilfields, which have equaled the Saudis’ production, also have aged. But with neither upgrading nor expansion in places such as Eastern Siberia, which has been initiated to implement a $50 billion agreement with China, Russia will attempt the opening of the oil not yet explored under the Siberian tundra.
Such a turn of events puts the U.S. in the driver’s seat because no other world nation has such a huge expanse of potential underground oil and natural gas capability that could meet most of the oil demands necessary to fulfill the needs of today’s undeveloped and developing global economies. These consumer sectors will be multiplying along with their expanding populations as 2030 and beyond comes ever nearer.
Such an incredible future potential could elevate America’s fracking potential for oil and natural gas to unforeseen heights. This alone could move America’s gross domestic product from the current near $18 trillion level to an awesome 50% to 75% increase during the upcoming 15-20-year time period.
Even with an American population exceeding 400 million, much of its acreage will remain essentially barren and will be subject to the massive technological development making untold oil and natural gas available as needed to the rest of the world. This will not only make the U.S. by far the world’s most versatile and productive nation ever seen, but will put future American generations in a position to easily absorb its current national debt.
This will be accomplished while becoming the world’s undisputed leader in exports, technological development and per capita income. Its future citizens will be able to enjoy a standard of living which no other global nation could hope to even come close to.
Preliminary inflation indicators
The initial indicators of a forthcoming inflationary rise are beginning to be displayed, as negative productivity statistics were reported in the early 2015 months.
This fact is readily confirmed by a slow but steady U.S. employment growth, but even more so by the rise of labor costs, especially in the low-wage service industries. With unemployment rampant for the past six years, wages have been static or even lowered as competition for available jobs remains fierce.
Productivity historically has been the most reliable measure of efficiency with which to project the effectiveness of direct and indirect labor. One of the major reasons for America’s current disinflationary “unit cost” environment has been breakthrough technology that has required substantially less labor involvement per unit than existed a mere decade ago.
This graphically applies to mass production of finished industrial goods that necessitate anywhere from a quarter to one-half the number of hands-on workers required less than a quarter century ago. Most recently this technological evolution has escalated significantly (e.g. robotics standing at the threshold of widespread usage).
This aspect, together with the plentiful and cheap resource cost of natural gas, has greatly reduced America’s overall employment needs, while making U.S. goods and services more cost-effective than ever. This is a main reason for the U.S. rising to the top of international exports along with China, Japan and Germany.
Such a phenomenon, however, complicates the United States’ vast number of job-ready, but unemployed personnel as the increasing speed of technological evolution, especially in the manufacturing sector but to a lesser extend in the service arena, reduces the need of hands-on workers.
The impact on optimum productivity has most recently become negative, as a slow but steady number of previously unemployed are entering the workforce, especially in the areas of direct labor and service personnel that had been “cut to the bone” during the Great Recession.
Additionally, such massive multi-locational retail complexes as Walmart, Costco and McDonald’s are voluntarily raising wages. Although these overall privately owned national chains are doing this voluntarily, it also represents a counter effort to federal government’s attempt to force unionization and impose a minimum wage hike by mandatory presidential executive decree.
There eventually will be an attempt via legislation to decrease the current disinflationary trend to shorten the work week from the current 40-hour mark down to 30 hours, thus eliminating the access to company benefits the former number brings with it.
These early labor cost trends will give Chair Janet Yellen the basis for eventually initiating higher interest rates. Historically, wage pressures always have been the trigger for universal cost increases, resulting in full-fledged inflation as these costs move through the distribution channel from raw material to finished goods.
The hobbling of renewables demand
Although little has been reported on the daily pages of the economic media, it has been increasingly verified that solar, wind, ethanol, geothermal and the trend toward electric cars have been negatively impacted by the overflow of oil and natural gas availability, while relatively static power generation demand has been slowly switching back to fossil fuels.
Although the Environmental Protection Agency and other regulatory agencies are attempting to stop this reverse to fossil fuels, the lower prices and greater availability of crude oil the world over has already impacted the fast-growing automotive sector, especially in the two biggest motor-vehicle markets, the U.S. and China.
Even mandates supporting a switch to renewables and a greater percentage of ethanol in each gallon of gasoline are not stemming the tide of returns to SUVs and large sedans that have become increasingly popular this year. This has occurred after more than a decade of smaller and lighter car preference due to soaring gas costs.
If the low prices of crude oil and natural gas continue their excessive availability as the year wears on, the “renewable renovation” may itself be facing a substantial slowdown. This will not be mitigated by either governmental pressure or competitive marketing campaigns. While a surge in oil and natural gas prices may be manifested in the second half of 2015, it’s highly doubtful these will approach the $100 per barrel mark that had become so commonplace in this century’s first decade.
Although the increasingly expanded hydraulic fracturing technology has been temporarily stalled by OPEC’s defense of market share no matter what the cost, it is predestined the U.S. natural resources of oil and natural gas are so immense that it will almost surely become the world’s top oil exporter within the next decade.
With less than 10% of such underground wealth potentially available for development on private and government lands, the sheer economic benefits of revenues, jobs and total energy independence will surely be given the green light by future U.S. governments that will see in fracking an immense source of wealth that a fast-growing U.S. population cannot afford to dismiss. It would, for certain, elevate the U.S. crude and refined derivatives to the world’s No. 1 exporter while satisfying all U.S. energy needs now and in the future.
With governmental change commonplace in the 230-plus years of America’s momentous development, natural resources, abetted by renewables, would generate revenue, wealth and employment that future U.S. governments will not allow to be idled.
World crude oil demand likely will be at least 130 million bpd by 2030.