Will the US Become World’s Top Oil Producer?
The AP is reporting on the return of the US as the world’s top oil producer. The US has had a long history of oil production, as in the twenties when Southern California was the Saudi Arabia of the day. In the near future, writer Jonathon Fahey anticipates that US could overtake Saudi Arabia as the world’s biggest oil producer. Fahey posits high prices and innovative drilling methods could propel US production to a 7 percent rise in 2012, with an average of 10.9 million barrels per day. This would be the four straight year US oil production increases and mark the single largest gain since 1951. But, would this have implications for the US’s overall economic plight? Probably not.
“Five years ago, if I or anyone had predicted today’s production growth, people would have thought we were crazy,” says Jim Burkhard, head of oil markets research at an energy consultant firm. The Energy Department forecasts that US production of crude, hydrocarbons and biofuels will reach approximately 11.4 million barrels a day in 2013. That would be a record for the US and just shy of Saudi Arabia’s output of 11.6 million barrels.
Citibank is more optimistic in their forecast, indicating that US production could reach 13 million to 15 million barrels daily by 2020. This sort of output has led some to call North America “the new Middle East.” 2002 was the last time the US led the world in world oil production, but this was due to a drastic cut in Saudi production arisen from low oil prices in the months immediately following 9/11. Since that point, the Saudis and Russians have led the world.
However, the US will remain dependent upon oil imports, as Americans use 18.7 million barrels per day. Still, some analysts portend that oil imports could be cut in half by decade’s end.
Growing demand for oil in developing nations and political strife in the Middle East and North Africa has led to consistently high oil prices, helping the margins of independent drillers but mainly large international oil companies such as Royal Dutch Shell, which increasingly looks to US as a land whose resources to exploit. ExxonMobil signed on in September to spend $1.6 billion to increase its US oil holdings.
The drilling is taking places in states like North Dakota, Oklahoma, Wyoming, Montana and Texas, all of which are enjoying unemployment levels below the rest of the nation, with official unemployment numbers indicating rates under 5%. The booming oil production has created opportunity for not only the oil industry, but also transportation and even homebuilders, auto dealers and retailers where the energy is produced. It is anticipated by some analysts that the drilling will lead to the creation of 1.3 million jobs across the US on top of the already 1.7 million jobs tied to it.
“It’s the most important change to the economy since the advent of personal computers pushed up productivity in the 1990s,” says economist Philip Verleger of Peterson Institute of International Economics.
In the US, the particular innovation credited with the production increase gives drillers the ability to squeeze oil out of rock. This process, once thought too tough and costly, sees drillers drilling horizontally into long and thin shale and other rock instead of merely searched for rare underground pools of hydrocarbons that have accumulated over millions of years. Water, sand and chemicals are pumped into the rock so as to crack it open in a process known as “fracking.”
The method is a dirty one, and could lead to contamination of the waterbed. It is not the only reason leading to the boom in production. High oil prices have done the job by giving drillers the margins they need to spend on research and discovery, as well as developing the new techniques. The average oil price over the last decade is $69 a barrel. In the decade before, the average price was just $21.
Production in the Gulf of Mexico is ratcheting up in the wake of the 2010 well disaster and oil spill. A softening of the natural gas market has led to drillers having funds for equipment and workers.
According to Wood Mackenzie, another energy consulting firm, production from the aforementioned shale formations is expected to increase from 1.6 million barrels a day in 2012 to 4.2 million barrels per day by 2020.
The peak of US oil and liquid production was in 1985 at 11.2 million barrels per day due to Alaskan fields. The long decline started the following year and lasted until 2008, with crude production falling each year but one, dropping by 44 percent over that period. The US imported nearly 60 percent of the oil it consumed in 2006. By the end of 2013, oil output in the US will be at its highest level since 1998 and oil importants will be lower than at any period since 1992, at 41 percent of consumption.
The US will continue producing oil as prices increase due to quantitative easing. But, one can suspect that due to higher prices, Saudi Arabia might kick up its production, considering it sits on the world’s largest oil reserves. The International Energy Agency, on the other hand, expects Saudi output to remain steady to 2017.
Saudi oil is very cheap tap, whilst the US’s oil is very expensive. This alone makes the US less competitive than Saudi Arabia oil production. But, perhaps even more damning is the dysfunctional nature of the US political system. Although it has been historically steady and stable, recent pressures have caused a further splintering and division among the nation’s political and technocratic core and the population. This will make the US unviable for investment in the coming years and decades.