US Presidents from Nixon to Biden have denounced OPEC’s cartel grip on the global oil market and touted energy independence as a way to get away from it. Most often, this independence involved stepping up drilling in the United States.
But especially since President Barack Obama, energy independence has been linked to Americans’ move away from fossil fuels. Solar power and electric vehicles were en vogue.
The Council on Foreign Relations, a nonprofit New York-based think tank, believes OPEC faces a legitimate threat, but not from solar or even electric vehicles. At least for now. CFR’s recently revised OPEC filing reports that the group views “unconventional oils” (aka hydraulic fracturing, aka fracking) as that threat.
After nearly four decades of decline in US crude oil production, sandstone and shale oil production reversed this trend beginning in 2009. In the following decade, US production from fracking has more than doubled to stand at just over 400,000 barrels by 2020.
Fracking brings its own environmental concerns. And they are not nothing. But the fracking revolution shows what can happen in free societies when markets drive innovation and inventors and investors see need.
And the “shale revolution” continues, according to the CFR. Until 2018, the US was the largest oil producer in the world. In fact, the US produced a total of 11.6 million barrels per day in 2022, ahead of Russia (10.5 million) and Saudi Arabia (10.2 million). No other country produces even half as much as the top 3.
OPEC holds about 73 percent of the world’s oil reserves, led by Venezuela and Saudi Arabia, and the US remains the world’s top oil consumer at 17.2 million barrels a day — followed by China at 14.2 million. No surprise.
U.S. oil production has rebounded from a mild pandemic slump, despite President Biden’s pledges to halt all drilling and fracking on public lands. Mr. Biden has not kept such promises; Drill permits issued under his administration have already surpassed those of his predecessor.
Sometimes the reality on the ground trumps everything else.
In 2019, an “OPEC+” coalition of Russia and nine other countries was formed to offset this surge in US oil. OPEC and its new junior university agreed to cut oil production by 1.2 million barrels a day to keep prices higher and build inventories.
Then the pandemic reduced demand, sending oil prices to their lowest levels in almost 20 years. US shale production collapsed. Now, six months after Russia’s invasion of Ukraine, Western-imposed sanctions have pushed prices to more than $5 a gallon in some US cities and, as CFR notes, “returned attention to the role of OPEC.” .
Industry experts say it will take a while for production to ramp up again, and CFR suggested the US will end up looking to OPEC for oil.
However, OPEC’s foundation has shown signs of cracking in recent years. The membership list currently stands at 13 after Qatar, which joined in 1961, withdrew over disputes with Saudi Arabia, OPEC’s de facto leader. The Saudis’ “more assertive foreign policy” is expected to anger OPEC feathers even more. In 2020, the Saudis and Russia fell out over pricing.
OPEC was created more than half a century ago as an alternative to a Western OPEC. The “Seven Sisters” dominated the global industry from the mid-1940s to the mid-1970s. His roster? Anglo-Iranian Oil (now BP); Royal Dutch Shell (now just Shell); Standard Oil of California (later Chevron); Gulf Oil (merged with Chevron); Texaco (remerged with Chevron); Standard Oil of New Jersey (Esso, then Exxon, then ExxonMobil); and Standard Oil of New York (Socony, then Mobil, then ExxonMobil).
Before 1973, these companies controlled about 85 percent of the world’s oil reserves. Together they could have been called a cartel.
green is good; it is necessary for our long-term future. But it takes time. (And it buys votes.) But black gold still moves the world. At least for now.
Shouldn’t we prefer it to come from American shale or boreholes than Saudi sand?