Ravi Speaks:
Why do Russian Oil and Gas Matter to the Global Economy?
Your
questions about gas prices, Russia, and the energy sector were answered.
Image
By The
New York Times
Energy exports are the cornerstone of Russia’s economy. In recent years,
Russia has sent large quantities of its natural gas and oil to Europe, the
United States, and elsewhere. Now the Russian invasion of Ukraine threatens
already-troubled global energy markets with more disruptions and rising prices.
In the latest jolt, the U.S. banned imports of Russian energy and European
nations pledged to gradually follow suit. Here are answers to some common
questions about the world’s reliance on Russia’s energy supplies.
Jump to:
How
much oil does the United States produce?
How
much oil does Russia supply?
Where
does the United States get its oil? How much comes from Russia?
Can
the United States produce more oil?
Can’t
the world just produce more oil?
Why
are gas prices so high right now?
How much oil does the United States produce?
The United States is the world’s largest oil
producer. The Energy Department recently predicted that national daily
production would rise to 12.6 million barrels a day in 2023 from its current
average of 12 million barrels.
U.S. oil output doubled in the past decade as
producers embarked on a frenzy of drilling in shale fields and in the deep
waters of the Gulf of Mexico. However, production has been slow to recover
since it plummeted by a million barrels per day in 2020 as demand fell amid the
pandemic. Even before Covid, investment in new production had been squeezed as
investors demanded that oil companies drill-less and return more cash to
shareholders.
The Energy Department recently predicted that daily
national output would rise to 12.6 million barrels a day in 2023 from its
average of 12 million barrels this year. That would be 300,000 barrels above
the 12.3 million barrel record set in 2019, a tiny increase in a global market
of 100 million barrels a day. Substantial increases will take time to achieve,
and require oil companies to harness more manpower and equipment.
How much oil does Russia supply?
Russia provides roughly 10 percent of the global
supply of oil.
Russia is one of the three top oil producers in the world, after
the United States and Saudi Arabia. Shortly after Russia’s invasion of Ukraine
in late February, traders and European refineries significantly reduced their
purchases of Russian oil. On March 8, the U.S. announced a ban on all Russian oil imports.
Economists suggested the move could have small but potentially meaningful
economic consequences for the U.S. economy, and gas prices reached a new high. President Biden said the plan would target the “main artery” of the Russian
economy.
Where does the United States get its oil? How much comes from
Russia?
The United States produces most of its oil
domestically, but the rest comes from Mexico, Saudi Arabia, Egypt, and, before
this ban, 10 percent of its imported oil came from Russia.
The United States relies on Russia for only about 3
percent of the oil it consumes — about 600,000 barrels per day. About 60
percent of U.S. demand is satisfied by domestic production, and that amount is
modestly rising, with the Energy Department predicting that the average daily
output will rise to 12.6 million barrels by 2023 from about 12 million barrels.
Russian oil represents less than 10 percent of U.S. imports, with the rest coming primarily from Mexico, Saudi
Arabia, and Egypt.
By contrast, Europe relies on Russia for about
one-third of its total oil imports.
Can the United States produce more oil?
It’s not that simple. Multiple factors, including
fewer drilling sites, a shortage of workers, and antitrust laws, inhibit oil
production in the United States.
The United States has mostly become energy
independent after the shale boom that began in the late 2000s. Despite its
environmental effects, companies started fracking to extract oil and gas from
the shale layer across the continental United States, a costly process that allowed the country to become the world’s largest oil producer.
That hasn’t been the case since the 1960s.
That renewed dominance helped tamp down oil prices as U.S. producers took market
share from OPEC Plus nations. They outflanked competitors in supplying
growing global markets, particularly China and India, while slashing imports
from the Middle East and North Africa. In 2018, the United States became the
world’s largest oil producer with a record output of more than 10 million
barrels a day, according to the International Energy Agency.
But the boom may already end. By early 2022, growth in output
had slowed and U.S. producers were finding fewer places to drill.
Altogether, inventories are becoming crimped. Even before the pandemic curved
demand for oil, U.S. producers had lowered production to pump up
profits as investors demanded returns as dividend payments and
better financial performance.
Thousands of oil workers have been laid off or
left the industry over the past three years. There is also a
shortage of sand necessary for puncturing hard shale to capture oil stored in
the rocks. Executives are also reluctant because when they rushed to drill more
in recent decades as prices rose, oil frequently crashed, converting booms to
busts.
For now, domestic oil suppliers still plan to
increase output, but at a slower pace. Supply chain woes and worker shortages
have also cut into production.
Unlike OPEC Plus, U.S. companies are also subject
to antitrust laws and cannot coordinate to manage oil output. They are also
private entities and cannot be ordered to simply produce more.
Can’t the world just produce more oil?
Yes, but not fast enough to offset the recent rise
in gas prices.
About half of the world’s oil production depends on a
cartel of oil-rich states known as OPEC Plus, a group of 23 nations led by
Saudi Arabia and Russia. It does not include the United States.
OPEC stands for the Organization of the Petroleum
Exporting Countries, a group of largely Middle Eastern nations that was formed
in 1960; “Plus” refers to the nations that agreed to work with OPEC starting in
2016, a contingent that includes Russia.
The cartel decides how much oil to produce, keeping
in mind that pulling more oil out of the ground increases supply, thus lowering
the value of each barrel. But if prices rise too high, it could curb demand,
lowering the value of oil. The group tries to keep prices as
tolerably high as possible, a state of play that has often drawn condemnation
from U.S. politicians accusing the group of acting as an illegal monopoly. (In
recent years, lawmakers have tried to pass bills that would allow them to sue
OPEC producers for price collusion.)
After the invasion of Ukraine, the cost of oil
soared. Oil markets often react negatively to geopolitical
instability. Less than a week after Russia’s military incursion, OPEC Plus
producers held a regularly scheduled meeting and kept oil prices
high by maintaining a modest increase in oil production. One co-chair of the group is a Russian deputy prime minister, Alexander
Novak.
Russia had seen slumping demand for its
oil after its invasion of Ukraine. It struggled to sell its inventory even
after offering discounts of as much as 20 percent.
Before Russia started its war on Ukraine, OPEC Plus
was increasing oil production at only a modest clip to reap higher profits.
Energy companies had been trying to claw back lost dollars after the pandemic
caused a worldwide slump in the economy.
Why are gas prices so high right now?
Gas prices are up because of companies raising
prices as a part of a post-pandemic economic recovery plan and Russia’s
involvement in Ukraine — both before the U.S. ban on Russian oil was in place.
Gas prices had been rising even before the invasion
of Ukraine for a combination of reasons. After businesses recovered from
the pandemic, consumers began spending more. Companies increased the prices of everything from doughnuts to hotel
rooms. With more consumers traveling and spending, oil suppliers
scrambled to keep up with the rising demand, leading to higher prices at the
pump. But that wasn’t the only factor. The pandemic caused massive disruptions
to global supply chains, increasing the cost of delivering goods, such as oil.
After Russia invaded Ukraine in late February,
several European nations and the United States imposed sanctions on parts of
the Russian economy, but they steered clear of disrupting its oil and gas
exports. The idea was to punish Russia without inflicting pain on consumers in
Europe, which highly depends on Russian gas and oil.
But the Russian attack stoked outrage across the
world and many businesses halted or curtailed their investments and operations
in Russia altogether. That included the oil giants Shell, BP, and Exxon Mobil.
Russian oil and gas suddenly became toxic to many buyers, cutting into the
global oil supply and leading to higher gas prices.
On March 8, less than two weeks after Russia
invaded Ukraine, the U.S. announced a ban on all Russian oil imports,
further increasing the potential for higher gas costs. President Biden said the
plan would target the “main artery” of the Russian
economy, but it also meant sacrifices by western nations. That same day, gas
prices in the United States reached a new high.
0 Comments