A recent declaration by a blogger that the US already has topped Saudi Arabia in total liquids output comes with even more asterisks than we wrote about last week. But it does add yet one more question about how to count barrels, which is probably going to be a major parlor game in coming years.
On a blog entitled Next Big Future, a blogger named Brian Wang looks at some data and reaches the conclusion that for at least now, the US already has become king of the production hill.
Here’s his math: he takes the latest weekly EIA report on supply. That shows US crude production in the week ended December 7 as 6.852 million b/d. He then adds to it another production number the US aggregates under the header of “Other Supply.” That total is 4.492 million b/d, and it includes 2.458 million b/d in NGL production. Crude plus “production” totals a rounded number of 11.34 million b/d.
There are two categories in that “production” category that are included by the International Energy Agency as legitimate contributors to the supply/demand balance, and are relatively big numbers in terms of the US portion of that equation. Refinery processing gains, which are estimated by the IEA to be about 2.2 million b/d in non-OPEC countries worldwide, are estimated by the EIA as 1.1 million b/d in the US. So the US would have about half of the processing gains of the entire non-OPEC world, according to this EIA data. That would be way out of whack with US refining capacity of about 17.5 million b/d, but US refineries are also considered some of the world’s most technologically advanced.
(The EIA defines processing gains as “the volumetric amount by which total output is greater than input for a given period of time. This difference is due to the processing of crude oil into products which, in total, have a lower specific gravity than the crude oil processed.”)
Secondly, ethanol and “other” total 923,000 b/d, of which 824,000 b/d is ethanol and the balance is made up of things such as biodiesel.
The writer then compares that 11.344 million b/d to what he estimates is recent Saudi liquids production of just under 9.5 million b/d of crude (as Saudi Arabia reported to OPEC in the group’s most recent monthly oil market report). He also apparently is assuming 1.7 million b/d of NGL, since he gives a total Saudi liquids output figure of 11.2 million b/d.
NGL production figures are often difficult to come by. For example, the IEA only releases its estimate of total OPEC NGL output, without disclosing country-by-country figures. But the 1.7 million b/d figure might be a little conservative, since the EIA a few years estimated the kingdom produced about 1.8 million b/d of NGLs and what it called “other liquids.”
So add the 1.7 million b/d to the 9.5 million b/d of reported Saudi crude output, and you’ve got 11.2 million b/d, compared with the estimate of US output of 11.34 million b/d. Hence, a new “top dog” liquids producer, according to Mr. Wang.
It’s not so much that Mr. Wang is wrong; outside of the estimate of Saudi NGL production, all the other data he cites is backed up in statistical reports, and are considered part of the world supply/demand mix. He fails to include an estimate for Saudi processing gains, but with refinery capacity of about 2.1 million b/d, according to the BP Statistical Review (according to the workbook you can download from this page), that wouldn’t be a significant number.
It’s just that somehow it seems a bit of a stretch to declare the US as the world’s biggest liquids producer when almost 10% of its supply is coming from refinery gains, and about another 8% is coming from ethanol and other biofuels that wouldn’t exist if it weren’t for various government regulations and incentives.
Of course, there aren’t too many countries in this world who can claim the Adam Smith laissez faire award for perfect markets. Saudia Arabia subsidizes retail gasoline so that it’s significantly less than $1/gal, which impacts demand; Russia, which also might vie for the “king of liquids” crown, often slaps high monthly export taxes on some of its crude to force feed it into the domemstic market, lowering costs for domestic refiners; and the developing world is full of subsidies for gasoline and LPG used in the home. The US’ support of ethanol and biodiesel hardly makes it the only nation interfering with the type of textbook market they taught you about in college.
This is all sort of beside the point, because the only reason this discussion can occur is because Saudi Arabia has taken on the mantle of world’s swing producer. If it wanted to throw another 1.5 million b/d on to the market and tank the price, it could do so. And then some of the world’s highest-cost production might be forced to shut in. Much of it is in the US.
One thing is clear: for a blog that focuses on supply/demand fundamentals and is always looking for good controversies to write about, counting barrels as US output keeps rising is going to be the gift that keeps on giving.