U.S. Becoming Largest Hydrocarbons Producer

The hydraulic fracturing technology, combined with horizontal drilling, is dramatically changing the world league table for producers of crude oil and natural gas. The United States now produces as much or more liquid hydrocarbons (crude oil plus natural gas condensate) as Russia and Saudi Arabia, with U.S. production increasing annually, while Russia’s is declining as its fields become less productive (Of course, this may change as Russia starts to develop its offshore oil resource in the Arctic.)

US,Russia,SaudiThe Energy Information Administration (EIA) graphic, taken from an article in the October 21st issue of Chemical and Engineering News, compares the combined estimated Btu content of petroleum and natural gas for the three countries for the period 2008 to 2013. It illustrates the surging production of crude oil and natural gas in the U.S. over this period, when “fracking” started to take off. Also illustrated is the declining dependence of the U.S. for imports of both hydrocarbons. U.S. crude oil production is now around 8.5MM barrels per day, still about 20% lower than Russia’s and 10% lower than Saudi Arabia, but when our rapidly growing natural gas liquids and condensate production (as separated from natural gas) is added, we are producing more hydrocarbon liquids than the other two countries. Our dependence on imports is declining markedly: In 2003 we imported almost 60% of our total crude oil needs and this figure is now approaching 35%, as we back out Middle East and Venezuelan crude with our increasing domestic production.

To complete the picture, China, Iran and Canada each produce about 4 MM barrels per day. Total world production in 2013 was 84 MM barrels per day.

An interesting sidelight of the domestic crude production story is the fact that very large amounts of produced crude are now being shipped to refineries by rail rather than pipeline, even though this mode of shipping is considerably more expensive! There’s a good reason for this. Is it time to invest in the shares of certain railroads? More about this in a future blog post.

It’s also interesting to reflect on the “Peak Oil” theory. This was first proposed, as I recall, by an ex-Shell geologist who based his prediction largely on the declining number of very large new oil fields being discovered. We now know that the amount of oil still being discovered in very large amounts offshore is increasing total reserves at an unexpectedly high rate. Also, the fracking technology is starting to produce increasing amounts of crude oil from tight formations and that’s only in the U.S.  So, we need to stop worrying about running out of oil. However, these new sources are obviously more expensive to produce than a typical “gusher” so that the price of oil will stay high. This projection is underlined by the fact that in the U.S. two very expensive ($ 10 Billion+) projects planned by Sasol and Shell will produce liquid fuels from natural gas, using so-called gas-to-liquids(GTL) technology. Both of these firms have excellent experience with the Fischer Tropsch process that will be used in these plants. They would not invest if they thought that oil prices would ever get down to the $ 30- $50/barrel level.

It’s exciting that technology advances (fracking, horizontal drilling, very deep offshore drilling, and GTL) have provided a vigorous answer to the Peak Oil theoreticians, who can now be grouped with The Club of Rome adherents who gave dire warnings about running out of resources (including oil) a number of decades ago.

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