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Proprietary Data Insights Financial Pros Top Permian Basin Oil Stock Searches This Month
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Why Does The U.S. Import Oil? Reading the headlines, you would think that the U.S. could simply shut off its exports and become energy independent. That’s sort of true but not the entire story. There are two reasons the U.S. exports and imports oil. First is pure economics. The majority of the U.S. oil and gas infrastructure is down near Houston-New Orleans. Source: American Petroleum Institute It simply makes more sense to export to Mexico and import from Canada or overseas in many cases because of logistical costs. There’s also the cost to get oil out of the ground. Some countries simply do it cheaper. For example, in 2020, the U.S. produced 18.4 million barrels of oil per day and consumed 18.12 million barrels per day. The second reason is chemistry. Oil is graded based on weight and sweetness. Weight defines how easy it is to refine and sweetness refers to the sulfur content (sweeter=more sulfur). Most of the oil coming out of Texas is light/sweet crude which is easier to handle. The problem is for many years the U.S. imported oil which was typically heavier and less sweet. And therein lies the bottleneck. We can pump more. We just can’t turn it into usable products as quickly. How can we fix the problem? We’d need to invest in more refining capacity to handle that specific type of oil. Is that likely to happen? Over the next decade or two, sure. If you’re looking for refiner investments, check out Phillips 66 (PSX), Valero (VLO), and Sunoco (SUN). |
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Energy |
When Will We Run Out of Oil? |
Key Takeaways:
Despite pleas from politicians, oil and gas companies have been hesitant to add new drilling capacity in the U.S. Many point to the high investment costs, lack of proven reserves, and permits available. But could there be another reason lurking in the shadows? We’ve Got 50 Years To Figure It Out Estimates vary wildly. But generally speaking, the world has around 50 years of oil left to be extracted. The majority of that sits with energy rich countries such as Russia and Saudi Arabia, Canada. Yet the U.S. has one of the largest untapped oil reserves in the world. As you might expect, the easy oil was the first we went for. Each incremental well drilled becomes harder and harder, costing more and more. Ironically, higher oil prices lead to its death simply by making alternative fuels and energy sources more cost effective. Natural gas has an estimated 53 years left with coal at a whopping 114 years. Why No One Agrees Higher prices also make exploration for reserves that were more costly now possible. Shale drilling is a great example of a technology that increased our access to crude and natural gas. We also only know as much as we know. There could be huge reserves in unexplored areas of the world. It’s not likely, but it’s certainly possible. The other key factor – the clean energy transition. As countries speed up their move to green energy, the usage of oil slows down. The U.S. Opportunity You’ve probably heard about the Permian Basin – an oil rich area of land that stretches from Texas to New Mexico. It’s the single largest untapped reserve in the U.S. In terms of productivity, no other region in the U.S. comes close. This region accounts for 20% of the world’s supply of working drilling rigs, making it busier than any other country according to Baker Hughes Co. Data. The Bottom Line: Are we decades away from running out of oil? Yes. Do we still need to aggressively transition away in the next 2-3 decades? Yes. The U.S. has the ability to help itself by increasing production in oil rich areas like the Permian Basin. But it’s not so much the government as investors that need to take the plunge (unless the government wants to invest in these areas). If you’re looking for oil and gas stocks that are part of the Permian Basin’s growth, check out Chevron (CVX), Devon Energy (DVN), and Diamondback Energy (FANG). |
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