Commentary: Future of the US Hydrocarbon Business – and Houston

I have been in the petroleum refining, oil/gas, petrochemical business since I was 18 years old (1979).  Over time I have been able to see some patterns and put together a picture of where this industry has been and where it is going.  Here are some observations.

  • According to Daniel Yergin, in his video, “The Prize”, the oil industry has been prone to over supply since the beginning of its history.  If supply is not regulated, the price of oil can approach ridiculously low values.
  • When oil was first found in the Middle East, the Americans, the English, and the Dutch were not the only ones there.  The Germans and the Turks were there too – according to my memory of a research paper that I wrote in MBA school.  It seems that World War I decided who would be the major players in this business and shaped future world history.
  • OPEC is later organized and for decades one can hear on the news that the OPEC ministers are meeting in Brussels, or some such place, to “peg” production.  Well, that is pegging the price of oil as well.
  • During the 1980’s, folks in this industry are lamenting that the US cannot compete with Saudi Arabia because the US has high labor and material costs.  “They are flaring methane!!!”  Now the US flares methane too.  Although Saudi Arabia literally had hydrocarbons to burn, the focus is on the price of oil being high enough to allow the US to compete with Saudi Arabia.
  • Until recently, America was required to import over 50% of its petroleum usage.
  • The 1990’s were not good years for oil, but that changed with the Bush 43 presidency and the advances in fracking technology.  Nevertheless, the same old game is being played; that is, price pegging, over supply, boom and bust.
  • Fracking has increased oil production but it has also increased methane flaring.  On the surface, this seems so illogical.  Methane has more BTUs per pound than gasoline.  It seems that oil companies are throwing away the good stuff to keep the bad stuff.  Folks say, “thats ok because methane is clean burning”.  That is true, but not if you can see the flame – a visible flame means incomplete combustion.  Satellite photos of fracking fields at night show so much light that the fields look like large cities.
  • The whole world now admits (except for the US, it appears) that fossil fuels are the main cause of global warming.  From data taken 2 years ago by the EPA, transportation and electricity generation are the main polluters.
  • Recently we have seen Saudi Arabia cut back on production to elevate oil prices while the US intensified drilling in West Texas.  Oil prices have climbed slightly but ever so slowly.

What does this mean for the US oil industry?  In a word, it means “decline”.  Employment and production will dwindle in the future.  Hydraulic, wind, and solar energy will take large market shares in the energy industry.  Methane will be a prominent too, and fuel cells might make a great showing as well – particularly in the use of hydrogen as an energy source.

I recently attended the American Public Transportation Association Conference and Exhibition in Atlanta.  Manufacturers of public and private transportation (cars, trucks, buses, rail, etc) are making great strides to move away from hydrocarbon energy sources.  Volvo and others have announced they will only sell electric cars in the near future.  Methane is also gaining ground as a transportation fuel.

The problem I see for Houston is that, for the most part, the city has placed nearly all of its bets on hydrocarbon energy.  In 2010, I wrote a research paper on this subject and the data from the Department of Labor, and others, showed that future employment in the oil business is definitely trending downward.

I have lived in Houston nearly all my life.  The oil business is all I know.   The industry has been good to me.  I just hope Houston has an exit plan.

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