There's a Dark Side to U.S. Oil and Gas Exports

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Written by Daniel Graeber for Industrial Info Resources (Sugar Land, Texas)--Net exports of crude oil and natural gas from the United States have offset some of the supply-side concerns globally, though it's done little to ease inflationary pressure at home, the Organization for Economic Co-operation and Development (OECD) said. Shale's potential, meanwhile, could be limited.

Analysts at the OECD reported the war in Ukraine was having a detrimental global impact. Growth has lost momentum; energy prices are high and the cost of living is increasing.

"Labor market conditions generally remain tight, but wage increases have not kept up with price inflation, weakening real incomes despite the actions taken by governments to cushion the impact of higher food and energy prices on households and businesses," the report read. "Global GDP (gross domestic product) growth is projected to be 3.1% in 2022, around half the pace seen in 2021 during the rebound from the pandemic, and to slow further to 2.2% in 2023."

Russia was a major exporter of near-essential commodities, from crude oil and natural gas to grains. Geopolitical entanglements sidelined many of those goods, leading to an exponential rise in prices.

The OECD said the direct impact from the Russian war on Ukraine has been limited. Because it's a net exporter of oil and natural gas, the United States has helped limit some of the supply-side disruptions that resulted from the war.

"U.S. exports of natural gas and wheat have risen in response to shortages on global markets," the report read. "Nonetheless, largely as a result of the war, domestic food and gasoline prices remain elevated compared with the pre-pandemic period."

U.S. inflation is moderating. The price for all consumer goods was up 7.7% over the 12-month period ending in October, well below summer peaks. But food and energy prices remain elevated. Groceries are 12.4% more than year-ago levels and the all-energy component of the Consumer Price Index shows a 17.6% increase from last year.

Gasoline prices, meanwhile, remain the most ubiquitous sign of inflation. Retail gasoline prices have been on the decline for the better part of the month, but at $3.60 for a gallon of regular unleaded, the price at the pump is still about 6% higher than year-ago levels.

Diesel is another story. Retail prices are $5.27 on average, 44% higher than this time last year. Combined with the potential for a nation-wide strike among freight rail workers, and the holiday shopping season could be problematic.

All that comes as the United States does the heavy lifting for global oil and gas supplies. Some domestic lawmakers have called for export restraints, though that would likely backfire due to the global nature of the commodities market.

Production trends, meanwhile, point to record levels for U.S. producers, though the pace of increase is slowing, which could eventually create headaches for importers.

"The search for alternative sources of supply has been an important factor pushing up energy costs this year, with European countries bidding to attract supply from other markets amidst tight global supply conditions," the OECD said.

Tight global supply conditions could be supportive for U.S. shale players who already reaped hefty profits this year. Shale players are growing in importance on the global energy stage, but shale might not be as revolutionary as it once was.

Industrial Info Resources (IIR) is the leading provider of industrial market intelligence. Since 1983, IIR has provided comprehensive research, news and analysis on the industrial process, manufacturing and energy related industries. IIR's Global Market Intelligence (GMI) helps companies identify and pursue trends across multiple markets with access to real, qualified and validated plant and project opportunities. Across the world, IIR is tracking more than 200,000 current and future projects worth $17.8 Trillion (USD).