SAFE Releases Q3 Energy Security Fact Pack

Today, SAFE is releasing its third quarter update to the Energy Security Fact Pack, a powerful repository of the most recent trends affecting American energy security and the global oil market today. This most recent update features a spotlight on oil and gas production on federal lands, including offshore development, and the associated economic indicators, such as rig count and federal royalties. This quarter, SAFE’s Fact Pack examines oil’s rapid downward slide towards the $80-$90 dollar range. Against the growing backdrop of geopolitical turmoil around the world, including limited airstrikes against Islamic militants in Iraq and Syria, OPEC actually increased production by 0.6 million barrels per day (mbd) year-over-year (y-o-y) in Q3. This growth in output complemented budding domestic production, which increased 1 mbd over the same period. The recent glut in global crude oil production has opened new fissures within the cartel of oil-producing nations. In recent years, Saudi Arabia and some other OPEC member countries have reduced output in order to help maintain desired price levels (and price stability) during times of market oversupply. Thus far, they have chosen not to during the current slump, and some have even lowered their official selling price (OSPs) in an effort to maintain market share, inviting speculation of a price war within the cartel. This has prompted new questions about dynamics between OPEC member countries and the sustainability of higher-cost oil production across the globe. This edition of the Fact Pack offers key insight into Q3’s most significant developments:
  • Domestic crude oil production increased by 1 mbd in Q3 2014 (y-o-y), roughly 14 percent. Inclusive of fuel ethanol and natural gas liquids (NGLs), total U.S. liquids production is more than 4.6 mbd higher than it was in 2008, making the country the world’s largest liquids producer.
  • Global production grew 1.6 mbd (y-o-y) on the back of higher U.S. supply (+1.5 mbd y-o-y). OPEC (non-Saudi) supply was also positive in September for the first time in roughly two years.
  • Global oil demand increased by approximately 1.2 mbd (y-o-y). Non-OECD countries accounted for the majority of the increase. With the exception of a 0.2 mbd decline in Q1 2012, global oil demand has risen steadily since late 2009, reaching 92.4 mbd in Q3.
OPEC members convening later this month will certainly be pressed on the supply question. As SAFE’s latest Intelligence Report documented, several of these oil-dependent, resource-rich nations, including Venezuela and Iran, will demand reductions in oil market supply to shore up government revenues. Iran’s production could be further shaped by negotiations with the U.S. over its nuclear program. The oil cartel’s spare capacity remained relatively unchanged y-o-y, at 2 mbd. Overall spare capacity accounts for roughly 2.3 percent of global consumption, most of which is held in Saudi Arabia. Accordingly, the Saudis are driving geopolitical discussions on this important issue. An OPEC decision to lose market share by scaling back production would be welcome relief to Russia, whose government revenues depend on high oil prices, and to many small-to-medium light-tight oil (LTO) producers who need high prices to remain economically viable. Incentivized by higher-priced crude, the boom in U.S. oil production (+1.5 mbd y-o-y in Q3) has brought a flood of LTO onto the market, so much so that the U.S. now accounts for roughly 122 percent of net global supply growth (Chart 1, below). Growth in non-OPEC natural gas liquids production has also been consistent. This phenomenon is expected to continue into 2015 (Chart 2, below). The Q3 Energy Security Fact Pack also tracks the progress that has been made in the market for alternative fuel vehicles (AFVs). As recently as October, the number of commercially-available AFVs rose to 22 after Volkswagen announced its e-Golf sedan and BMW unveiled its i8 plug-in hybrid sports car. About 33,000 plug-in electric vehicles were sold in the third quarter—an increase of approximately 6,000 y-o-y. As more AFV models became commercially available, the U.S. light-duty vehicle fleet is also becoming more fuel efficient, having risen to 25.6 miles per gallon (mpg), 16 percent higher than 2009. For a detailed look at the latest trends in energy security and oil dependence, be sure to download the SAFE Energy Security Fact Pack in its entirety here.