Big oil is about to redraw the energy map.
Federal surveyors announced on Tuesday that the Wolfcamp shale in the Midland Basin portion of West Texas’ Permian Basin now holds the record for most oil, natural gas, and gas liquid deposits that are “undiscovered, technically recoverable resources.”
The U.S. Geological Survey (USGS) said the Wolfcamp formation, was found to hold an eye popping 20 billion barrels of oil trapped in four layers of shale, which is as much as a mile thick in some places.
That’s almost three times the amount of recoverable oil that the agency said there is in the Bakken-Three Forks formations discovered in 2013.
At current West Texas Intermediate crude oil prices, that oil is worth almost $900 billion.
Additionally, the USGS survey stated that 16 trillion cubic feet of natural gas and 1.6 billion barrels of natural gas liquids are able to be extracted.
A government spokesperson underscored the historic nature of the finding in a release.
“The fact that this is the largest assessment of continuous oil we have ever done just goes to show that, even in areas that have produced billions of barrels of oil, there is still the potential to find billions more,” said Walter Guidroz, for the USGS Energy Resources Program.
This new discovery doesn’t include the three billion barrels of oil found by oil exploration company Apache in September in a relatively unknown quadrant of the West Texas Permian Basin.
Given current politics and realities, what does this massive amount of new oil mean for energy security, gasoline prices, clean energy, the environment, and the emerging electrified vehicle market?
Each of these topics could merit a separate in-depth look, but for this story we will highlight some of the more important aspects.
The Wolfcamp formation signals that domestic oil production could actually approach a U.S. goal that has long seemed a political fantasy: energy independence.
In 2015, the U.S. imported approximately 9.4 million barrels of petroleum per day according to the U.S. Energy Information Administration (EIA). That includes crude oil, natural gas liquids and refined products such as gasoline and diesel fuels.
About 78 percent of gross imports were crude oil. The top three importing countries were Canada (40 percent), Saudi Arabia (11 percent) and Venezuela (nine percent).
Last year, net imports from foreign countries were equal to about 24 percent of U.S. petroleum consumption, the lowest level since 1970.
Before this new find of oil, the EIA expected the moderate decline in U.S. oil–import dependence to continue into the next decade.
Now, the number crunchers will have to reassess their prediction.
However, even if the U.S. produced 100 percent of its oil and natural gas, it would not guarantee complete energy independence because, for instance, Saudi Arabia – which has the world’s largest oil reserves – could as it has in the past lower output forcing other countries to tap into their supplies.
And, since oil is a global product, the threat of terrorism or other conflict can at anytime disrupt the flow and, like the above, force countries to look to the U.S. for supplies.
When talking with people about this new black gold find, one of their first comments is that with such an abundance, pump prices will surely fall.
What many people do not realize is petroleum is a global fungible commodity, and price is determined not by America’s own supply but by world markets and the influence of other oil producing countries.
The big news for consumers, according to Andy Lipow, president of Lipow Associates and an oil expert, is a meeting on Nov. 30 where OPEC ministers will be talking about an oil freeze and production cuts will be a factor on the short term.
When asked by Fox Business if the Wolfcamp discovery would lower gas prices, Lipow replied that whatever effect it may have is still off in the distance, and we “shouldn’t assume that because production is still 12 to 18 months away.”
Ironically, a meeting between Russia and Saudi Arabia took place yesterday without Iran and Iraq, two big producers who are adding significant oil supplies.
That means there is already a split among OPEC members and the end of the month meeting could conclude with freezes and production cuts in words only.
Best guess is some members will continue pumping oil as fast as they can while others adhere to the cuts and freezes.
There’s also a little talked about issue that could influence what OPEC decides.
Relations between America and Saudi Arabia have soured since a bill passed by Congress would allow 9/11 victims to sue the Saudi government for their role in the attacks.
Saudi Arabia usually dictates OPEC policy, so we’ll have to wait until the end of the month to see if fuel prices rise, stay at the same current low level or dip even further downward.
The U.S. has slowly been weaning itself from coal-fired electric power plants since the 1990s, and today that method of producing electricity has dropped to 33 percent, compared to 50 percent in 1995.
Replacing coal has been primarily natural gas, which now accounts for 33 percent of electric power generation. Another good chunk of electric power – 13 percent – is now produced from renewable sources such as hydro, wind and solar.
However, the day after the presidential election, share prices for coal and oil companies surged, while solar and wind stocks fell.
For example, Peabody Energy, the world’s largest private sector coal producer, saw its stock price skyrocket by more than 40 percent, while electric car maker Tesla Motors plunged five percent.
Analysts said these dramatic shifts were speculation that the new administration could breath new life into the limping oil industry and coal’s dying sector.
In other words, the energy industry could be substantially altered by a change in government policy, with clean energy in danger of being left behind while fossil fuels rebound.
But the wind and solar industries have made huge strides in bringing costs down, which will likely insulate them from a new White House.
Throwing out government support might slow growth rates, but the clean energy train has already left the station.
If oil prices remain low, that’s good news in general for America and the global economy.
The U.S. will benefit especially from the fact that much of the new cheap oil production will come from domestic resources, including the oil found by Apache and the Wolfcamp formation in West Texas.
But there is one major loser from inexpensive oil, especially if it is managed poorly: the environment.
The one clear benefit of reaching peak oil – when the world was expected to run out of easily accessible crude – was that it would force us to find alternatives quickly.
But if we are looking at cheap oil for years, or perhaps decades to come, it’s going to be much tougher to break the U.S.’ addiction to oil.
Since the burning of oil accounts for about 40 percent of the greenhouse gases that come from fossil fuels, and 70 percent of that 40 percent is caused by transportation, this has serious implications for climate change.
The Union of Concerned Scientists warns that “extreme heat, drought, storms, and other weather disasters are increasingly fueled by climate change and affect everyone regardless of political affiliation.”
To address global warming, the group says policy makers must find bipartisan solutions that substantially reduce heat-trapping emissions.
Closer to the prospective of time, the new President-elect has said he wants to open all federal lands to oil drilling.
Most new finds will be shale oil, like that discovered in the Texas’ Permian Basin, which requires advanced drilling or recovery methods, such as hydraulic fracturing known as “fracking.”
The environmental hazards of fracking are well documented, and while new methods are improving the environmental impact, they are not completely eradicated.
In Jan. 2010, eleven months before the battery-electric Leaf and General Motors’ extended-range electric Chevrolet Volt arrived, former Shell Oil President John Holfmeister said drivers could be paying $5 a gallon for gasoline by 2012.
Holfmeister proved to be a good forecaster, in Oct. 2012, gas prices in parts of California soared beyond $5 per gallon.
Since then, as is true of the sales of hybrids and plug-in electrified vehicles, fuel prices have gone up and down, but generally down – far down, and today the national average for regular gas is around $2.20 per gallon.
Electrified vehicles, including hybrids – and especially pure electrics and plug-in hybrids – offer a choice of fuel for consumers.
They can opt for a car with an electric motor and battery because it will use less or even no gasoline. Thus, it’s a defiant note to importing petroleum and a tiny but important step towards energy independence.
Consumers may choose an electrified car for economic reasons – no matter what the price of gasoline is, they will pay less to power their daily transportation.
Or they can choose an electrified vehicle because it is kinder to the environment. Hybrid and plug-in hybrids have few CO2 emissions coming out the tailpipe, while pure electric cars produce zero tailpipe emissions and have an overall lower carbon footprint.
What’s more, the global car market is otherwise on board with the electrified car agenda. Europe’s top automakers have all said they intend to have 15-25 percent of their sales coming from plug-ins by 2025. And, in the new world’s largest plug-in market, China, as well as Asian markets driven by regulations, automakers are also gearing up for more.
Regardless what the energy picture is in the U.S. therefore, the rest of the global market is pushing ahead on an endeavor that now sees the U.S. in third place globally, though it started as the leader.
As automakers petition the new administration to relax federal fuel economy regs, advocates can only hope the U.S. does not slip further in its global competitiveness.
At this stage, battery electric and plug-in hybrids still depend on generous federal, state and local incentives to entice buyers.
Even then, sales have been slow in a world of cheap gasoline as consumers are turning to crossover vehicles and pickup trucks.
So, do Americans still need green, electrified cars?
Many would say yes they do because they exist for numerous reasons that transcend insular political positions, or ideology. In short, there is something in them for everyone.
Automakers are confident in electrified cars, but for the longer term. A carbon constrained world and volatile crude oil prices almost certainly mean that EVs have a bright future, baring further unforeseen complications.
Plus, the electrified car industry has some headwinds pushing it along. For example, lithium-ion battery costs have declined massively since 2010, and this has helped automakers close the gap on sale prices with conventional vehicles.
Also, the driving range of EVs has extended – over 200 miles is becoming the new normal – and this offers more models that will satisfy a range of consumer needs.
Moreover, refueling infrastructure, one of the most critical pieces of the puzzle, continues to improve as well.
The number of EV charging stations have surged by 89 percent over the last three years, now totaling an estimated 16,000, a number that is rising quickly.
Meanwhile, 24 state and local governments have committed to expand their government vehicle fleets with EVs.
Battery-electric car sales in the U.S. are up 26 percent in the first 10 months of 2016 compared to the same period a year earlier. And U.S. EV sales could rise fourfold by 2020 to 320,000 annually, according to the Wall Street Journal.
It’s not clear if the sales rise of EVs can survive in the Trump era.
It’s possible that the $7,500 tax credit for electric cars could become a target of the new oil-friendly administration.
On the other hand, there may be no urgency to kill it — the provision expires when each automaker surpasses 200,000 EVs sold, and that will begin to happen as soon as late next year.
But, like so much with the new government, much remains to be seen.