Oil And National Security
In 2023, the United States once again moved into the position of the world’s top oil and gas producer and exporter. By year’s end, the U.S. was producing almost 14 million barrels of oil per day—a record. Those production increases have come mostly from smaller producers, who ramped up production and exports to Europe to compensate for cutoffs of supply from Russia due to sanctions.
U.S. record production is marginalizing the Organization of Oil Producing and Exporting Countries. OPEC producers tried to cut back production to boost prices but only succeeded in surrendering market share both to the U.S. and to other producers who have boosted production, notably Guyana and Brazil. Saudi Arabia once relished its ability to influence U.S. elections by turning the oil spigot on or off, but it has lost that leverage.
U.S. drillers have long been the world’s most efficient, but they keep getting more efficient still, squeezing more oil and gas out of Permian Basin wells with horizontal drilling.
None of this means that the administration has abandoned its efforts to transition to cleaner forms of energy. Russia has been finding ways to evade sanctions on its oil and gas and boasts about its resources to continue its war on Ukraine. Plenty of countries are tempted to take advantage of Ukraine’s plight to buy discounted oil from Russia. U.S. production is key to helping our allies resist that temptation.
Besides helping allies and denying oil and gas revenues to Russia, U.S. energy production has another benefit: attracting foreign capital and companies. According to The Financial Times, German companies announced a record $15.7 billion of capital commitments in U.S. projects last year, up from $8.2 billion a year earlier, dwarfing the $5.9 billion pledged in China. Tax incentives are part of the story, but cheap, reliable energy plays a big part. Germany’s signature industries are heavily dependent on oil and gas as feedstocks. The amount of capital investment heading for the U.S. made up about 15 percent of total commitments in 2023 in either greenfield or expansion projects overseas, compared with 6 percent the previous year. Last year, the Swedish company Northvolt, which had been considering moving to Germany, chose North America instead.
Oil majors initiated a record amount of consolidation and deal-making in the last quarter of 2023. Exxon Mobil made an offer for Pioneer Natural Resources, Chevron made a bid for Hess and Occidental Petroleum bought Permian Basin producer CrownRock. The total value of the deals was $144 billion—a record level for any quarter and year. Companies hope those deals will strengthen them for a future when oil and gas demand will plateau and decline.
Along with our inland waterways system, oil and gas supplies and the ability to control our energy future remain vital elements of national security.
