Noted oil economist, Philip Verleger, says the US is moving to energy independence because of the recent innovations in oil production and demand destruction in the country.
“Gas consumption in the US is falling at 6% per year. Truckers are moving to LNG [liquid natural gas] so that diesel is falling. So the only part [of the economy] that will have strong demand is airlines. The rest is going away,” said Verleger in an interview with Bloomberg Surveillance.
“By 2020 that means we will have to close 30 refineries. It’s going to be very severe, and the oil industry is going to go through another restructuring.”
Verleger says the US will become a low cost country for energy production because of entrepreneurs and innovation within the industry, namely hydraulic fracturing.
“It has given us this huge bounty,” says Verleger.
In the short-term, Verleger says cheap gas is on the way with retail prices at the pump dropping well below $3 a gallon by November because Saudi Arabia wants to prop up the world economy; it’s also playing geopolitics.
Cheap oil helps Europe and the global economy, and low prices, says Verleger, also squeeze Iran.
“Everybody ignores it but the Saudis are furious about Syria,” says Verleger.
“The king made a very rare speech in February blasting China and Russia for their veto in the UN.
“OPEC is Saudi Arabia. It is a dominate firm monopoly, the way economists think of it. The Saudis set the tune. Russia says it is not part of OPEC, and it will not comply, but the Saudis can make them comply.”
Verleger was professor of management at the University of Calgary. He is now owner and president of PKVerleger LLC.
Comments
2ndOrion
When the refineries close – it is a good time to buy them because then they would be low cost. – A bargain. Natural gas is nice – but it has a lower energy per gallon than diesel. -So, regardless, when the price of diesel drops due to surplus, demand will pick back up again – for power intensive uses. People will always need power. Changing from gas or diesel in a poor economy to natural gas when good availability of gasoline and diesel is coming on from excess oil supply also, just will not happen all the way. The change is expensive.