By Dan Perkins:
The Wall Street Journal recently reported the price per barrel of oil certain countries need to fund their governments. Nigeria needs $139.00 per barrel; Saudi Arabia needs $83.80; and in last place, Kuwait only needs $49.10. One additional point of interest is that Venezuela needs $117.50 a barrel to fund its government. Now we know why the lights are out in this devastated, but once powerful OPEC member. CNN Money reports that the cost in the United States is about $36.00 per barrel, well below the market price.
According to statista energy is 5.9% of America’s GDP. World Economic Forum reports on the percentage of total GDP that countries depend on from oil and gas revenue. Here are a few examples: Saudi Arabia is 87.4% dependent on oil revenue, Nigeria is 87.6%, and Kuwait is 94.2%.
In a recent New York Times article, President Trump strongly suggested that OPEC increase production to bring down the price of energy. In particular, he recommended that the Saudis increase their production by 2 million barrels a day, believing if OPEC would increase supply, the excess would cause oil prices to decline. In an article on CNBC.com, however, OPEC oil production has plunged to a 4 year low. The Saudis alone accounted for 324,000 barrels a day of the 534,000 barrels that production cut.
The Energy Information Agency reported that the United States produced 11,871 million barrels a day, while the Saudis now stand at 9,787 million barrels. While OPEC is cutting production, America is expanding production, and American oil prices are less than Brent Crude, which is $71.55 a barrel vs. $63.89 for West Texas Intermediate (WTI) crude. American crude is more than 10% less than Brent, which makes our oil very competitive in the marketplace.
What is happening is a war to control global oil markets, and for now, OPEC is on the run and America is the power player. With the lower energy costs in a country like the United States, it is more desirable to locate or relocate a business. Add to the lower energy costs, attractive tax rates and an abundance of workers, resulting in a great environment to grow a business.
One of the additional benefits of a captive energy base is stability and predictability. Look what happened to America when Jimmy Carter was president and OPEC supplied 65% of America’s energy needs. When OPEC turned off the spigot, we were in trouble. It has been almost 70 years since America was energy independent, and now that the US is independent, we are in the driver’s seat.
The OPEC nations know that things have changed, and yet they are still trying to control the crude oil market. OPEC needs a certain price for crude for it to survive, and I believe that their time has passed. For the first time in many decades, we are telling OPEC how much to produce. For now, they are not listening. However, President Trump last week sent them a message when he signed a new Executive Order starting the Keystone XL pipeline construction in the US, which when completed will bring Canadian oil to the refineries on the Gulf of Mexico coast, allowing us to ship refined products all over the world.
Energy can double its percentage of American GDP, and still make it small compared to OPEC nations. In so doing, this will create perhaps millions of good paying jobs for Americans. Significant expansion of America’s energy resources will ensure it is a world economic power for good. The drilling technology developed by the United States will result in a better market for energy on a global basis with America in the lead. Perhaps the issue of American energy should be on the agenda for the 2020 presidential campaign. What should be America’s role in global energy production? Will states that have blocked development of their energy resources finally allow them to operate? If so, this would accomplish two things: putting their citizens to work and filling the coffers of the state’s treasury. This would thereby reduce that state’s debt; not only from the taxes on the energy, but also increased tax revenue from good paying jobs energy will produce.
American needs a national energy policy that develops all of our energy resources for all Americans.