We’re no longer No. 1. And that’s a good thing.
The U.S. Energy Information Administration confirmed this week that China in September surpassed the United States as the world’s top oil importer. The report further highlights how the tight oil boom throughout the country in less than five years has reversed decades-long trends and upended long-held beliefs about world energy supplies.
The report shows domestic imports have dropped by more than a third in just more than three years, falling to less than 6 million barrels per day, down from more than 9 million barrels per day in early 2011. Of the remaining imports, more than half is from Canada and Mexico.
Another EIA report this week also points to how tight oil is affecting domestic and global oil markets. The agency data shows that in the fourth quarter of 2013, the United States represented 10.4 percent of the world’s total oil production and that more than 40 percent of the country’s oil came from shale and other tight oil formations.
This week’s reports echo the domestic oil industry’s emphasis on how increased oil production throughout the United States has significantly reduced domestic demand for crude from the Middle East.
But they also raise questions about the sustainability of the trend.
China surpassed the United States in imports far more because U.S. demand for foreign crude dropped than because Chinese demand increased. While imports into the United States have tumbled by more than 3 million barrels a day over the past three years, imports to China are up by less than 1 million barrels a day.
For now, that’s good news for producers and consumers alike.
Just a few years ago, global demand and global production were almost equal. In that world, even the hint of unrest in the Middle East or other key parts of the world was enough to send global oil prices surging.
Today, however, increased U.S. oil production has created a cushion. When the United States and its allies imposed sanctions on Iranian oil sales, prices held fairly constant. When Russia invaded and claimed Crimea from Ukraine, prices jumped slightly for a day or two before quickly returning to pre-invasion levels.
The cushion is helpful in limiting price spikes, but if U.S. oil production continues to outpace global demand, that eventually could lead prices to fall.
Few consumers would complain if prices slipped a bit — they have been at or near record highs for much of the past three years.
But a prolonged price drop could threaten the recent growth.
Tight oil production is expensive. It’s not uncommon for a single well to cost between $8 million and $12 million. At that rate, production could be scaled back if oil prices fall too much.
Domestic producers say oil will continue to be a global commodity priced on a global market. They are convinced global demand will continue to grow as Asian economies strengthen. That’s also a large part of why they are pushing Congress to end its ban on domestic oil exports.
Whatever happens, it’s a far different world today than just five to 10 years ago when M. King Hubbert’s disciples were preaching the end of oil.