Take a second to think about a few oil-rich countries. Which ones come to mind? Most likely you are imaging places like Saudi Arabia, Russia, and Iran, but a new oil powerhouse is beginning to materialize. With the recent boom in natural gas drilling and the uneasiness to finalize a decision on the Keystone XL pipeline, many may be surprised to hear that the United States is producing oil at its highest level in 20 years. According to the U.S. Energy Information Administration (EIA), the U.S. is producing over 7 million barrels of oil each day, a jump from 6.4 million just one year ago. An increase in oil production was expected, but an increase of this size in such a small amount of time is actually quite astonishing.
What’s even more surprising is that the International Energy Agency is predicting that the U.S. could become the world’s largest oil producing nation by 2020, surpassing both Saudi Arabia and Russia. To aid this prediction, U.S. demand for oil is at a 17-year low, causing oil imports to decline by approximately 1.2 million barrels per day when compared to this time last year.
In fact, China has recently become the world’s largest net oil importer, a title which the U.S. held since the mid 1970s. Net oil imports are typically classified as both crude and refined oil products. The EIA has found that U.S. net oil imports fell to 5.98m barrels per day in December, its lowest level since February 1992. At the same time, Chinese net oil imports rose to 6.12m barrels per day. Citigroup’s Commodities Analyst Eric Lee was the first to report on this trend declaring, “China looks to have overtaken the U.S. to become the world’s largest net importer of crude and petroleum products.”
With oil gushing from the Bakken formation in North Dakota, and Texas doubling its crude production since January 2010, these two states continue to lead the U.S. in oil production. As mentioned by Mark Perry, economics professor at the University of Michigan-Flint, the state of Texas has produced nearly one third of U.S. oil during the past six months.
There is no doubt that hydraulic fracturing has helped with this new level of production. The process of pumping millions of gallons of water, sand, and chemicals into the ground to break apart the rock in order to extract oil and gas, is controversial to say the least, but certainly effective in collecting this resource.
“When horizontal drilling got married to hydraulic fracturing, the key year was 2003. That was when it was proof of concept. So for five years, it unfolded quietly with the independents. In 2008, that’s when the majors got interested,” stated Daniel Yergin, vice chairman of IHS, Inc. Since then, it’s clear to see ‘the majors’ have remained not only interested, but fully dedicated to consistent fracking.
As with any large venture, a number of variables will have an impact on the future of U.S. oil production. Oil prices, the amount profits being made in each area, and how long a well continues to produce oil are all determining factors. Protestors of hydraulic fracturing also hold concerns on groundwater pollution, while many politicians say there is nothing to worry about.
One major question being asked is how will this increase in domestic oil production affect gasoline prices? Since oil prices are determined on the world market, increased U.S. drilling will not automatically lower the price of a barrel of crude. “It will be an interesting interaction between increasing supply in the U.S. and increasing global demand. We’ll see how that all plays out over the next couple of years in terms of oil prices,” says Perry.
Energy Curtailment Specialists, Inc.