Petroleum Powerhouse: Why America No Longer 'Needs' the Middle East https://nationalinterest.org/featur...why-america-no-longer-needs-middle-east-55012 Washington's foreign policy should be based on the realities of the world today, rather than decades ago. Energy is vital to America’s security and prosperity. During the Cold War, the United States had strong interests in ensuring the Middle East was not dominated by the Soviet Union—we couldn’t risk a major disruption to the global oil market, which was once dominated by the Persian Gulf. But today, there is no threat to the region from any hegemon. Not only that, but also the world energy balance of power has shifted dramatically. With a vastly different geopolitical reality, U.S. foreign policy should modernize and recalibrate, starting in the Middle East. Saudi Arabia’s massive state-owned oil company, Saudi Aramco, just issued debt—about $10 billion worth—in the form of bonds sold to investors. But before investors lined up to buy, they had to kick the tires, and the documentation banks have provided offers a rare look at the state of oil production in Saudi Arabia. The “stand out” of the bond prospectus is that the Ghawar oil field, once the world’s most productive, is dwindling. Today, it produces only a quarter of its capacity from fifteen years ago. This means that Saudi Arabia’s overall capacity to produce crude oil is likely declining. Meanwhile, America’s Permian shale oil reservoir has officially become the world’s biggest, producing more than four million barrels per day. The Permian’s dominance is emblematic of the massive shift in world energy production over the last decade: America is now the world’s top oil producer. This, along with the massive shift in geopolitical reality that was the end of the Cold War—where it was essential to keep the Soviets from dominating global oil production—has drastically reduced the importance of the Middle East. U.S. foreign policy has yet to adjust accordingly. Once, much of the United States’ oil was inaccessible because it was trapped in shale rock, deep under the earth’s surface. But about a decade ago American energy producers began applying the new technology of hydraulic fracturing and horizontal drilling—previously only used to access natural gas—to access oil trapped in shale rock formations like those in the Permian reservoir. Aided by private property rights and the rule of law, production boomed. U.S. crude output more than doubled, and America now has more recoverable oil reserves than any other country in the world—including Saudi Arabia and Russia, which hold the number two and number three spots, respectively. In the next five years, American oil exports should also surpass Saudi and Russian exports, even though we domestically consume far more energy than either of these nations. Meanwhile, U.S. natural gas production, which isn’t easily exported, has likewise flourished in recent years, further decreasing America’s dependence on imports and lowering energy prices for American industry. Because of these huge shifts, The Economist coined the term “Saudi America.” And continued investment means the American energy industry will become even more disproportionately productive in years to come. This U.S. energy revolution should profoundly impact our foreign policy, but because of intransigence and groupthink in Washington, it hasn’t—yet. Today, because policymakers overvalue the strategic importance of the Middle East, there is an irrational fixation on Iran. That has led us to effectively take sides in a 1,400-year-old religious war between Sunnis—led by Saudi Arabia—and Shias—led by Iran. Policymakers in Washington have gone so far as to turn a blind eye when Sunni countries like Saudi Arabia fund and export the extreme form of Islam responsible for 9/11, and fund terror groups who continue to commit atrocities in places like Syria’s civil war. For their part, U.S. policymakers have (accidentally) armed Sunni terror groups that are affiliated with Al Qaeda, such as the Nusra Front, because these groups are fighting allies of Iran. America also continues to support the Saudi war effort in Yemen’s civil war, where the Saudis and Yemen’s Sunnis are fighting the Iran-backed Houthi rebels (who are Shias). America arms Saudi forces and facilitates their air war, despite the Saudi record of indiscriminately bombing civilians and aiding Al Qaeda in Yemen. As a result, tens of thousands of Yemeni civilians—woman and children included—have been killed and maimed, while hundreds of thousands starve—all to prevent a return to the mostly Shia-Sunni split of Yemen into two countries, which existed only a few decades ago. In other words, to fight nationalist Houthis who want their own country. Enough already. It is not in America’s interest to be picking sides between Saudi Arabia and Iran. The status quo leaves us with less leverage over either side and has consistently placed us in morally dubious situations that run counter to short and long-term American interests. Overall, the Middle East is of diminishing strategic importance, and it’s time to properly order America’s global defense priorities. We must reassess what matters—and what doesn’t. Yes, America needs the capability to protect the global commons, which includes the choke points through which much of the world’s crude supply flows. It is perfectly reasonable, for example, to help negotiate a settlement in Yemen’s civil war to ensure Sunni control of the land directly adjacent to the Bab-el-Mandeb strait, a choke point for Saudi oil shipments. It is likewise reasonable for the United States to keep Iran, or any other power, from mining the Strait of Hormuz, another choke point through which much of the world’s oil supply flows. The rationale for our tight relationship with Saudi Arabia, warts and all, was based on Cold War realities. But the Cold War is over, and the United States is the world’s new petroleum powerhouse. Our foreign policy should be based on the realities of the world today, rather than decades ago. Things have changed, and they should change in Washington, too.
https://www.resilience.org/stories/2019-01-27/has-u-s-shale-oil-entered-a-death-spiral/ I gave you examples and articles explaining Parent/Child Wells issues... US Shale is a Ponzi, not sure why you are refusing to admit it. A lot of industry people have clearly exposed what's going on. Read entire article The pattern of negative news from shale country is not just related to price, however. Oil production, it seems, is being overstated industry-wide by 10 percent and 50 percent in the case of some companies, according to The Wall Street Journal. The CEO of one of the largest players in the industry, Continental Resources, predicted that growth in shale oil production could fall by 50 percent this year compared to last year. In reality, we should expect worse as the industry for obvious reasons tends to exaggerate its prospects. The place where the damage to investors has become severe is in private equity firms who hold a large portion of the shale oil industry’s high-yield debt. The plan for the firms was always to unload the debt on somebody else when better opportunities presented themselves. But the firms overstayed their welcome and are having a hard time even finding a bid in the market for these bonds. To add to the problems, the future of U.S. shale oil production seems to be in the Permian Basin in Texas which has been providing the lion’s share of oil production growth for the entire country. But ongoing drought in an already arid West Texas has raised doubts about whether the Permian will have enough water to meet all the demand for fracking new wells. Because of the rapid declines in the rates of production from shale wells, companies must first drill enough new wells to offset the loss of production from previous wells—a task akin to walking up the down escalator.
That article you like to cite doesn't square with reality. At all. Does not square with EIA data and it does not square with industry data. https://oilprice.com/Energy/Energy-General/Big-Oils-Biggest-Weapon-In-The-Permian.html Big Oil’s Biggest Weapon In The Permian By Tsvetana Paraskova - Apr 28, 2019, 2:00 PM CDT While European oil supermajors are yielding to investor pressure to set emission reduction targets and announcing investments in renewables and EV charging networks, U.S. majors ExxonMobil and Chevron are doubling down on oil production on their home turf, turning the ‘shale game’ into a ‘scale game’, as Chevron’s CEO Michael Wirth has recently said. The two biggest U.S. oil firms aim to boost significantly their respective production from the most prolific U.S. basin, the Permian, which now pumps more than 4 million bpd of crude oil. Both Exxon and Chevron hold vast acreage positions in the basin, and both have the financial resources to invest in ramping up shale production even through various oil price cycles, even at oil prices at which smaller independent drillers struggle to break even and scale back drilling and capital spending. The shorter-cycle shale production yields returns in two-three years, compared to many years of lag time from discovery to development to start-up of complex offshore oil projects, for example. While Exxon and Chevron are not giving up on their most promising conventional oil projects outside the U.S., their common key priority by the middle of the next decade will be the Permian. And in order to achieve their ambitious growth targets, the U.S. supermajors rely on innovation—not only innovation in drilling, but also digital innovation and transformation with increased use of various AI technology, cloud computing, automation, and data analytics. Chevron and ExxonMobil, for example, work with Microsoft to boost efficiencies and profits. Chevron signed in 2017 a seven-year partnership with Microsoft, under which the tech giant is Chevron’s primary cloud provider and the companies are working on speeding up the application of analytics and the Internet of Things (IoT). Earlier this year, Exxon struck a digital partnership with Microsoft to use cloud technology to increase oil production and profitability in the Permian. According to Exxon, the partnership will make its Permian operations the largest-ever oil and gas acreage to use cloud technology. Cloud technology application is expected to generate billions of U.S. dollars in net cash flow for Exxon over the next decade, as data analysis and operational efficiencies improve. The partnership also has the potential to increase Exxon’s production in the Permian by 50,000 oil-equivalent barrels a day by 2025, the U.S. supermajor says. Last month, Exxon and Chevron announced increased targets for their Permian production. Chevron now sees its Permian unconventional net oil-equivalent production rising to 600,000 bpd by the end of 2020, and to 900,000 bpd by the end of 2023. In 2018, Chevron’s annual production in the Permian was 310,000 bpd, up by 71 percent on the year. Chevron boasts a “unique position” in the Permian “characterized by long-held acreage, zero-to-low royalty on more than 80 percent of our land position, and minimal drilling commitments,” said Jay Johnson, executive vice president, upstream. These factors, combined with the use of new technologies, are driving higher returns and stronger cash flows, according to Johnson. Similarly, Exxon also revised up its Permian growth plans to produce more than 1 million oil-equivalent barrels per day by as early as 2024, which would be an increase of almost 80 percent. The shale game is now a ‘scale game’, Chevron’s Wirth told CNBC in March after the company announced its latest Permian growth targets. “The big thing that I think has changed is the shale game has become a scale game, and so people that can do things at large scale and bring the capabilities to bear that a company like Chevron has are the ones that really can take this to the next level,” Wirth told CNBC. While independent exploration and production firms are much more sensitive to oil price trends in their drilling plans, the supermajors are bringing in scale and technological innovation to the shale game to squeeze as much profits from the Permian as possible. Chevron’s agreement to buy Anadarko and Occidental Petroleum’s offer two weeks later to buy Anadarko at a higher price than the one Anadarko had accepted from Chevron highlight “a larger scale pivot in supermajors strategy to short cycle shale investments,” Tortoise, which invests in energy assets, said in a recent update. “With strong balance sheets, stable multi-year investment programs and the ability to invest through production cycles, the expanding presence of supermajors in U.S. shale is positive for stable, visible longer term production growth,” said Tortoise, noting that it expects “more large acquisitions of independent U.S. E&Ps, particularly in the Permian basin, as the supermajors look to increase scale by blocking up significant chunks of acreage to support their growth plans in the future.” By Tsvetana Paraskova for Oilprice.com
Hahaha, humans never cease to amaze... Dear Spread Professor, you are aware Shale is money losing pit ? Especially when suckers are hard to come by now to finance the whole thing. No kidding aside, are you serious or trolling ? Literally spending a few hours reading on topic can get you aware of that, you notice it's always about " production " growth and never about " profit " in these propaganda bull articles ? Speaking of Exxon, it's US Upstream Revenues for 2018 was 1.73 Billion while it's US Upstream Capex was 7.67 Billion, net loss cash-flow of around 6 Billion in 2018 for US Operations... Child Wells are now the majority in Permian, it's gonna get real ugly within a year or two tops, they barely produce, you lose money with Child Wells guaranteed Exxon ( Millions ) Q1 2018 Q1 2019 Earnings ( US GAAP ) 4,650 2,350 Capex 4,867 6,890 4.5 Billion lost Q1 2019...At some point fairly soon, Exxon's board will step in and tell them to stop destroying the company with US Shale, how much do they have to lose before they step in ? 15 Billion ? 25 Billion ? Ill give you Chevron will be OK, cause they do not pay much royalties, practically none for most of land, but other companies are zombies just there to provide employment... US Fracking is in the business of taking money not making money US Gas companies need Donny to hurry up taking over Venezuela, so they can tap real money making deposits... Venezuela deposits now exceed Saudi Arabia, Saudi's milked the shit out of their deposits, until that happens, expect bleeding of cash every quarter, slight profit or break even would be quite a surprise for majority of Shale players Oh, and the clean up cost... Who is gonna foot the bill ? They don't have the money, so who is gonna pay ? Just Alberta alone is gonna cost between 20-50 Billion, some environment nuts even think 70 Billion http://www.rcinet.ca/en/2019/04/09/oil-and-gas-well-clean-up-costs-up-to-70-billion/
Doesn't really explain the current crazed bidding war for Anadarko, now does it ? For a Very Shale-Intensive E&P Company there is a raging battle taking place and Warren Buffett has joined the fray today with a $10 Billion bankroll. And Buffett is the GOAT when it comes to M&A.
Article written based on assumptions. We all have the right to speculate about things but to go ahead and write something as if it was the truth ......... well !! I really don't take all the "facts" provided as very factual.
Journalist Bethany McLean made her name writing about Enron and the 2008 financial crisis. Now she has a book out on a new subject of interest: "Saudi America."