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July 10, 2014

U.S. Overtakes Saudi Arabia and Russia as Largest Oil Producer

July 10, 2014
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According to the International Energy Agency (IEA) and the Bank of America, the United States is now the world’s largest oil and natural gas liquids producer and will remain so for awhile, overtaking both Saudi Arabia and Russia. U.S. production of crude oil, along with liquids separated from natural gas, surpassed all other countries with daily output exceeding 11 million barrels during the first 5 months of this year. Oil production is soaring from shale formations in Texas and North Dakota using hydraulic fracturing and directional drilling technology. According to the Energy Information Administration (EIA), those two states produced almost 50 percent of the nation’s oil in April 2014.[i]

The United States became the world’s largest natural gas producer in 2010, ousting Russia for the top spot. The United States also ranks as the world’s largest producer of oil and natural gas combined. Now, it is also the largest producer of oil and natural gas liquids.

Texas and North Dakota Oil Production

The United States produced 8.4 million barrels per day of oil in April 2014—the highest monthly production volume in 27 years–with Texas and North Dakota accounting for nearly half of the total. Texas oil production reached over 3.0 million barrels per day for the first time since the late 1970s, more than doubling production in the past three years, and North Dakota production reached 1.0 million barrels per day for the first time in history, nearly tripling its production over the last 3 years.

Combined crude oil production volumes from Texas and North Dakota reached 4.0 million barrels per day in April. From April 2010 to April 2014, crude oil production volumes in North Dakota and Texas grew at average annual rates of 37 percent and 28 percent, respectively, compared to 2 percent average annual growth for the rest of the United States. During this period, North Dakota and Texas’s combined share of total U.S. crude oil production rose from 26 percent to 48 percent. By comparison, the Gulf of Mexico’s crude oil production share declined from 27 percent to 17 percent due to Obama Administration policies increasing the red tape for oil production on federal lands and waters.

Gains in Texas crude oil production come primarily from unconventional tight oil and shale reservoirs in the Eagle Ford Shale in the Western Gulf Basin and the Permian Basin in West Texas. North Dakota’s increased oil production comes primarily from the Bakken shale formation in the Williston Basin. Since April 2011, the Eagle Ford has seen the largest monthly average increase in production exceeding 32,000 barrels per day, more than twice the 14,000 barrels per day increase in the Permian. Production from the Bakken increased 19,000 barrels per day on average each month over the same period.

 Monthly Crude Oil Production

Source: Energy Information Administration, http://www.eia.gov/todayinenergy/detail.cfm?id=16931

World Oil Prices

Generally, the increased supply of shale oil in the United States would have resulted in lowering world oil prices; but global events in oil markets have restricted production in several oil-producing nations. Protests in Libya and oil theft in Nigeria have reduced global supply and violence in Iraq has led to concerns that oil production may be cut from the country in the future. These events, among others, had raised the price of Brent crude, traded in London, to its highest daily level of the year of $115 a barrel on June 19th. It has since receded and EIA expects it to average less than $110 per barrel for the year.  Increased U.S. oil production has resulted in balancing the supply gaps and keeping prices at a fairly constant level. However, West Texas Intermediate crude oil is expected to remain about $7 to $10 per barrel below that of Brent crude oil.

Future Expectations

According to the Bank of America, the United States is expected to hold its spot as the top “oil”-producing country this year because production in the second half of the year is expected to increase further. EIA in its latest Short Term Energy Outlook expects crude oil production in 2014 to average 8.46 million barrels per day and to increase to 9.28 million barrels per day in 2015.[ii] That production will lower oil imports to a 22 percent share of consumption—the lowest share in 45 years. According to the IEA, U.S. oil and natural gas liquids production will reach 13.1 million barrels per day by 2019, a bit higher than EIA’s forecast of 12.28 million barrels per day in its Annual Energy Outlook 2014.[iii] However, the IEA expects the United States to lose its top spot in global “oil” production in the 2030s with the Middle East re-emerging as a top force due to its abundant and low-cost resources.[iv]

Conclusion

The shale oil boom due to hydraulic fracturing and directional drilling has resulted in large volume gains in U.S. oil production on private and state lands where federal policies have little effect on output. That production has helped the United States regain its stature as the world’s largest oil and natural gas liquids producer in the world, overtaking Saudi Arabia and Russia. It is also expected to reduce our dependence on oil imports to 22 percent in 2015—the lowest level in 45 years. While that production has not resulted in lower world oil prices due to unrest in several oil-producing countries, it has had a stabilizing effect on those prices. According to Francisco Blanch, the head of commodities research for the Bank of America, “The shale boom is playing a key role in the U.S. recovery. If the U.S. didn’t have this energy supply, prices at the pump would be completely unaffordable.”[v]

 

[i] Energy Information Administration, North Dakota and Texas now provide nearly half of U.S. crude oil production, July 1, 2014, http://www.eia.gov/todayinenergy/detail.cfm?id=16931

[ii] Energy Information Administration, Short Term Energy Outlook, July 8, 2014, http://www.eia.gov/forecasts/steo/

[iii] Energy Information Administration, Annual Energy Outlook 2014, http://www.eia.gov/forecasts/aeo/

[iv] Bidness Etc, US Ahead of Saudi Arabia as Largest Oil Producer in the World, July 7, 2014, http://www.bidnessetc.com/22429-us-ahead-of-saudi-arabia-as-largest-oil-producer-in-the-world/

[v] Bloomberg, U.S. Seen as Largest Oil Producer after Overtaking Saudi Arabia, July 4, 2014, http://www.bloomberg.com/news/2014-07-04/u-s-seen-as-biggest-oil-producer-after-overtaking-saudi.html

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  • Pissed Off

    It should be subsidized right along with groceries and electricity and water. Someone please tell me why the hell gas is so damn high. Who cares about the civil unrest if we are the ones producing the most oil? Bring all our troops home because we are now no longer dependant on foreign oil and there will be no more civil unrest! Its bad enough that taxes groceries utilities mortages and the fact that we have to take care of every lazy person and illegal that there is in the usa that the common working citizens are drowning trying to keep their heads above water! Its sickening the sheer amoynt of corporate and political green that is entirely running this country!

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