Oil Industry Can Help Lubricate U.S. Economy
Paradoxical but true: An industry in which U.S. companies and technology lead the world is in deep trouble here at home. The industry is oil and gas, especially the exploration and production parts of it.
Even as major U.S. drilling and exploration companies help find new deposits around the world--contributing about $13 billion in export earnings to the U.S. trade account--the number of drill rigs working in the United States is at its lowest point since 1942. Job losses--350,000 in the last decade--continue in the domestic oil business, and the trend for U.S. production is down, even as imported oil keeps the country running a permanent trade deficit.
As with so many other aspects of the global economy, there are grounds for confidence in today’s oil and gas picture, but also reason for worry. And we need understanding if we are to encourage the positive and restrain the negative.
Most reassuring are the competitive victories of U.S. drilling and service companies as major petroleum firms invest more than $20 billion in a search for oil outside the United States. Halliburton, Baker Hughes, Dresser Industries, BJ Services and others are drilling and cementing wells from Sumatra to Irkutsk.
But their declining stock prices reflect less on success overseas than on a home base suffering neglect thanks to weakness in U.S. energy policy. Imports will supply 48% of U.S. oil demand this year, more in years to come. Over half of the imports will come from the Organization of Petroleum Exporting Countries, 31% from Saudi Arabia alone.
“The energy policy is to send in the troops,” snaps George Mitchell, chairman of Mitchell Energy & Development, a Houston-based producer of natural gas. He means that growing dependence on the Middle East makes the United States vulnerable to the turmoil that led to the Gulf War.
To be sure, it’s not unusual for Mitchell and other oil executives to moan about government policies affecting their business. Their current peeve is against environmental restrictions on drilling in wildlife refuges and offshore basins.
But the decline of activity in U.S. oil fields today is so great as to be historic, says Daniel Yergin, president of Cambridge Energy Research Associates and author of “The Prize,” a history of the oil business.
“The migration of oil industry capital out of the United States takes your breath away,” says Yergin, referring to the billions being invested overseas. “Other countries want oil investment, perhaps our country doesn’t.”
A great American industry appears to be at a watershed, and we should know what that means. It should not be forgotten that Saudi Arabia’s oil was developed by Americans in the 1930s and ‘40s using drills and techniques perfected over many years in Texas and Oklahoma. Americans developed the North Sea with know-how won in the Gulf of Mexico off Louisiana.
Today, the U.S. industry is ready to develop the oil and gas deposits of Russia and other former Soviet republics using three-dimensional pictures of subsurface deposits, rigs that produce from several holes at once and well casings that allow hot oil to surge up without melting the permafrost.
It has been an industry that provided good jobs. When the North Sea developed in the 1970s, the hotels of Aberdeen, Scotland, were crowded with oil workers from Louisiana and Texas, whom the Norwegians tried to hire in order to pick their brains.
Now there’s more global business but fewer jobs for Americans. Other countries realized that oil development means high-value jobs, and so they’ve offered incentives to oil companies. “Other countries are giving petroleum engineering degrees; when we operate overseas these days it’s mostly with local people,” says J.W. Stewart, chairman of BJ Services, an oil well servicing firm in Houston.
But back home there is bitterness. “It seems to be OK for politicians to worry about auto workers but nobody cares about 350,000 jobs lost around here,” says analyst Bryan Dutt of New Orleans’ Howard Weil, Labouisse & Friedrichs brokerage firm.
Arguments are corrosive. Environmentalists are blamed for restricting drilling off the Florida and California coasts and in the Arctic National Wildlife Refuge. But environmentalists too confront the dangers of tanker spills that come with rising imports.
What is needed rather than argument is a policy to encourage greater use of clean domestic energy, such as natural gas, to generate electricity and to power buses and other vehicles. The logic is that greater use of gas would reduce imports, shrink the trade deficit, benefit the environment, give more Americans jobs and keep oil field skills up to speed here at home.
Most of all, lower U.S. imports would lessen the threat to the world from Middle East tensions.
That’s why, in fact, the Bush Administration’s national energy policy--announced last year--recommends greater use of gas.
Yet, paradoxical but true, in his adopted state of Texas the President’s policies are scorned as representing more talk than action.
So the danger is that nothing will be done until the next Middle East crisis--which is no way to run a country or to treat a world-class industry.
Widening World
Oil and gas exploration investments in North America by the world’s biggest oil companies have stayed flat to down for five years, while they have increased dramatically overseas. One consequence is increased foreign income for world-beating U.S. drillers. But there are dangers too.
Investments in oil and gas exploration by world’s top 10 oil companies (in billions of dollars)
Source: Salomon Bros.
