The Facts about Prices

THE COSTS OF OIL & NATURAL GAS:

AT HOME. Two-thirds of the energy Americans use is either oil or natural gas. High oil and natural gas prices are principally the result of a supply and demand imbalance. Americans are demanding more energy to fuel their cars, new homes, factories, hospitals and schools. As this demand increases, we haven’t increased our supply of oil and natural gas –especially from domestically available resources. In fact, the production of our domestic oil and natural gas resources is declining. We must find new supplies of oil and natural gas here in America.

INTERNATIONAL OIL. Oil is a worldwide commodity. We compete with other consuming nations (like China and India) for this fuel source. With increased competition/demand, and no major new supplies, prices will rise worldwide. We also have higher prices because of supply disruption “fears” from potential hot spots in the Middle East, Venezuela, Russia. Worldwide spare capacity has reduced dramatically (from 10 million barrels per day a decade ago to 2 million barrels per day or less today).

NATURAL GAS PRICES. The natural gas used in the U.S. is mainly from North American resources. We haven’t fully developed the infrastructure to import natural gas in a liquifed state from overseas. Natural gas is a clean-burning, preferred fuel choice that powers most new homes and buildings, as well as power plants. But government policies have been inconsistent. Policymakers and environmentalists have traditionally encouraged natural gas use because it was clean-burning and abundant in the U.S. However, the same groups have discouraged the exploration and production of new domestic gas supplies. This paradox creates another supply-demand imbalance. The increase in natural gas demand isn’t being met with new supplies. Thus, prices rise.

OTHER REASONS – or ‘WILDCARDS’ – FOR HIGH PRICES.

  • Weather (cold weather will increase demand).
  • Hurricanes (can stop production in the Gulf of Mexico).
  • Litigation and unneccesary regulations that stop domestic producers from doing their jobs.
  • Lack of public support and government encouragement for new oil and gas wells (there also hasn’t been a new refinery built in the U.S. in a quarter century).
  • Geopolitical unrest around the world.
  • Market speculation (rise of non-commercial positions, such as hedge funds).

CONSEQUENCES OF NO NEW DOMESTIC SUPPLIES.

  • Unstable consumer prices.
  • Factories/manufacturers moving overseas for cheaper energy.
  • Lost jobs.
  • Lost tax and royalty revenue.
  • Reliance on foreign oil (national and economic security risk): 63% of our oil is imported today. 
    (http://www.ipaa.org/issues/comments/section232.php)
  • Supply disruptions from overseas.
  • Extremely high trade deficit (the U.S. trade deficit soared to a record $617.7 billion last year. One-third of that comes from oil imports, 180.7 billion).

WHAT CAN BE DONE?

High prices do not necessarily mean a healthy domestic oil and natural gas industry. We are not so much in a boom as we are in a recovery. Just a few years ago, prices crashed and the industry was severely hurt. Today, the industry is working hard to rebuild its workforce, its companies and its infrastructure. More than 200 more rigs are exploring for oil and natural gas in the U.S. (http://www.bakerhughes.com/investor/rig/index.htm) than at the same time one year ago.

But America needs a consistent federal policy that encourages oil and natural gas. Oil and natural gas is abundant here in the United States – and both can be developed with the best American technology that protects the environment.

The industry needs a federal policy that:

  • Recognizes the importance of domestic oil and natural gas
  • Allows access to non-park, non-wilderness federal lands where abundant, lower cost U.S. oil and gas is located
  • Provides for more offshore oil and gas exploration (85% of the offshore is off-limits today)
  • Stops unnecessary regulations and frivilous lawsuits
  • Provides full federal funding for government agencies that have industry oversight, and for oil and gas technology programs at the Department of Energy.
  • Streamlines the permitting process
  • Encourages students and develop a new workforce for the coming years
  • Credits for unconventional resources and ultra-deep drilling to make projects less “risky”

WHO ARE INDEPENDENT PRODUCERS?

There are about 5,000 independent oil and natural gas producers in the U.S. They operate in 33 states and the offshore. Independents drill 90 percent of the wells in the U.S. and produce 68 percent of America’s oil and 82 percent of domestic natural gas. Independents can be small family companies or publicly traded companies.