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The “Oil Abundance” Narrative is Wrong

by Michael Levi
November 21, 2013

A mixture of oil, diesel fuel, water and mud sprays as roughnecks wrestle pipe on a True Company oil drilling rig outside Watford, North Dakota, October 20, 2012. Picture taken October 20, 2012. REUTERS/Jim Urquhart


America has moved from oil scarcity to oil abundance, and our attitudes need to change in order to keep up. If the stream of headlines and panels is any indication, you’d have to be an idiot to disagree with that claim.

So call me stupid, because I just don’t see it.

There’s no question that U.S. oil production is booming. The country has passed Saudi Arabia as the world’s biggest liquid fuels producer and is now producing more oil than it imports. The rise in U.S. output, which is poised to continue, is good news for the economy and national security. It’s also something that leaders need to adjust to as they develop policy and strategy.

But setting production records and passing milestones is fundamentally different from abundance. By pretty much every meaningful indicator, the abundance story is wrong.

Start with physical volumes. The United States imports roughly half of the oil it consumes. If the United States imported half of its labor, no one would say that the country enjoyed an abundance of workers. Oil is no different. Saudi Arabia enjoys oil abundance – it produces far more than it consumes. Ditto for Russia, Kuwait, and a host of others. The United States is not in that category.

Prices are an even better indicator. Imported oil has traded around $100 for much of the last several years. You need to go back to 1981 to find real average monthly oil prices over $100 – and that lasted a whopping two months. Even if oil prices were to fall to, say, $70 a barrel, that price would be higher than it was for 346 of the 396 months between January 1974 and January 2007. If oil is so much more abundant than it was, say, a decade or two ago, why are sellers able to charge so much more for it? Real abundance means lower prices, not higher ones.

But you say: Aren’t we exporting record amounts of refined products – and now talking about exporting crude? That’s all true. But if we imported a lot of cars, painted them green, and then exported some of them, no one would say that we were enjoying an abundance of cars. (They might say that we enjoy an abundance of green paint.) That’s basically what’s happening with refining: we have an abundance of advanced refineries – more than we need for domestic consumption – but that’s different from having an abundance of oil. As for oil exports, that’s a variation on the same theme. We’re likely heading toward having an excess of light sweet crude relative to simple U.S. refining capacity, so it will make increasing economic sense to export some of the stuff. At the same time, we will continue to have a massive deficit of heavier crudes relative to abundant complex refining capacity; as a result, we’ll continue to be heavily reliant on imports in the aggregate. As with any traded item, it’s the net position that matters most.

And that reinforces the essential point. Abundance is the right narrative for a subset of U.S. petroleum refiners. It’s the right narrative for some U.S. states. It’s even the right one for some U.S. oil producers and pipeline operators. (It’s also a good one for natural gas.) And, to be sure, the extreme scarcity narratives (think peak oil) are wrong too. But just because the scare mongers are wrong doesn’t mean that we’re swimming in crude. And, most fundamentally, the position of the United States isn’t the same as that of the petroleum refining sector or the pipeline industry or even the state of North Dakota or Texas. For the United States, genuine oil abundance remains a long way away at best – and it would dangerous to forget that.

Post a Comment 8 Comments

  • Posted by Mark Green

    Great points. Perhaps the better term is “relative abundance.” As you often point out, these energy issues are too complex for the starkness of either narrative (abundance/scarcity). It is true the U.S. is better positioned globally when it produces more of its own energy, that domestic production tends to put downward pressure on crude prices and that we’re less vulnerable to shocks, geopolitical events. Technology and entrepreneurship have produced the current oil and natural gas surge. They’re important pieces of the larger energy picture, but that picture certainly must include a wide array of energy types. Thanks for the post.

    [ML: Reasonable suggestion — certainly abundance relative to how things looked five years ago, which has lots of economic/security/environment/policy consequences.]

  • Posted by Armando Paez

    Peak oil is about the end of cheap oil, you wrote about it:

    “If oil is so much more abundant than it was, say, a decade or two ago, why are sellers able to charge so much more for it? Real abundance means lower prices, not higher ones.”

    Welcome to the club.

    If some people can not pay for energy, scarcity is real for them, no matter if there is a lot of oil — or coal or wood, etc.

  • Posted by Asher Miller


    Thank you for pushing back on the abundance meme, which — even if you believe that the so-called Shale Revolution is here to stay — is simply a bridge too far. I do have to take exception, however, with your characterization that “the extreme scarcity narratives (think peak oil) are wrong too.”

    There is a range of views with regard to the nature of the peak oil phenomenon, just like there is a range of views with regard to the nature of climate change. Lumping all of these as “extreme” is, just like the concept of “abundance”, unproductive.

  • Posted by Chris Pedersen


    Thanks for your post. Your comments on price bring up two issues. If global demand growth for oil is mainly coming from developing countries, there is a limit on how much the average consumer can afford to pay for gasoline. Therefore, naturally the demand for oil is dependent on the price. At the same time, the amount of E&P taking place is enormous at the moment because of the price of oil. If oil did drop to $70 and was expected to stay there for a while, exploration would drop substantially. So lies the supply/demand curve: high oil prices will keep certain consumers priced out of the market (China and India), while high prices will continue to incentive companies to drill deeper and in more far off places. As other comments have mentioned, the phrase “relative abundance” might be more appropriate. In defense of the many authors that write articles on oil abundance, compared to how much oil analysts thought the US had ten years ago, the term “abundance” might just make sense.

  • Posted by KG

    Great article. It’s also worth pointing out that while non-OPEC production is up ~1.3mn bpd through October versus last year, OPEC production is down nearly 600k bpd. That’s only net +700k bpd of new oil production against demand growth in excess of 1mn bpd. That imbalance doesn’t do much to ameliorate low petroleum product stockpiles and helps explain why prices remain so high.

    Problems in Libya alone account for much of the OPEC reduction. Imagine where prices would be without US production growth.

  • Posted by Fernando

    Maybe I’m too ignorant, but I thought prices were highly influenced by a cartel called OPEC. Clearing prices in perfect markets do reflect levels of abundance and scarcity. Enter a cartel into a market and the market moves far away from perfection. I think that the price vs abundance argument is really weak for that reason.

  • Posted by FHS

    Mr Levi,
    Please do correct me if I am wrong since you are the expert.

    I thought the abundance narrative was about importing less and exporting more. As long as you export more than what you import, even if you consume more than what you produce, you will be enjoying abundance.

    You may be worried about the energy independence narrative, to which all your arguments make more sense (since the US consumes much more than what it produces).

    In my opinion, the real problem is confusing abundance with independence.

  • Posted by Dr. Tom ODonnell

    Well put, Michael.

    What I would add is from the geopolitical angle (esp. for a CFR piece):

    The fundamental structure of the post-OPEC Revolution market-centered global oil system will not fundamentally change, nor will the USA become independent of that system regardless of how much oil it produces.

    For example, the USA will retain its committment to the Persian Gulf region and the 5th Fleet there, etc.

    Energy independent or not, it is not in US interests to de-link its domestic oil market from the international oil market and/or to relinquish its role as de-facto protector of this market. Not only does this market-centered system guarantee the flow of energy to the USA itself and determine prices of oil in the USA, but, geostrategically, it prevents conflicts between the major consuming states over access to oil in producing states. This access is mediated by the “global barrel” market.

    Beyond the exigencies of global energy security, by playing this central role in global energy security, the USA gains enormous influence in other matters and preserves its legitimacy as the sole superpower.

    Just for example: The role and relationship of Chine within this US/OECD-mediated global energy system is fundamental to the present conflict over China’s control of its near waters and its “go abroad” energy program since the mid-1090’s

    Best, Tom O’D.

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