In late 2013, U.S. crude oil production exceeded 8 million barrels per day, reaching a level not seen since 1988. (So much for “Peak Oil”.) Imported crude oil and petroleum products dipped to 28 percent of domestic demand, down from 60 percent in 2005. both figures from the Energy Information Administration (EIA). In 2014, oil production is expected to rise to 8.54 million barrels per day(!). About 29 percent of U.S. production comes from so-called “tight formations”, requiring hydraulic fracturing and horizontal drilling. Five states (Texas, North Dakota, Wyoming, Oklahoma and Colorado) have seen major increases in crude oil production from fracking. Substantial amounts of crude are also being produced from the Utica shale in Pennsylania and West Virginia.
While fracking is usually associated with the dramatic increase in natural gas production and associated large drop in the gas price (except for the current bump due to the extreme cold weather), fracking has made an even large impact of the domestic crude oil front, with oil production consistently rising beyond the forecasts. Since domestic oil consumption has recently started to decline (smaller, more efficient cars, other energy saving devices), the U.S. is coming much closer to energy self-sufficiency in contrast to Brazil, China, and India, which are heading in the opposite direction.
The fracking technology continues to face substantial opposition in some states, notably New York, though incidences of water pollution, never very numerous, keep declining due to more regulations and greater enforcement. The issue of water use will always be a local matter, depending on supply and demand (See my November 20th, 2013 post on Pennsylvania’s experience). Opponents of fracking would presumably be OK with paying three times as much for natural gas and continuing to import large amount of crude oil from countries we would prefer not to use as sources (Venezuela, Saudi Arabia, Russia). But there’s no question that hydraulic fracturing of shale is here to stay.
Still, before we get too enthusiastic about our technological success in augmenting our domestic crude and natural gas production there is another issue which is that shale wells using the fracturing process experience a more rapid decline in production than ordinary oil and gas wells. This means that we have to keep drilling more and more wells to maintain, to say nothing of increasing our domestic production. Also, fracking wells are much more expensive to drill than conventional wells, where pressure brings the crude oil to the surface, at least at first. Offshore oil wells are also much more expensive. All of this means that crude oil prices will not drop much below the current $ 100/barrel price. But we can surely live with that price, as our economy has learned to absorb this price level for a couple of decades. While our domestic oil price has at times dipped below the global standard price as set by Brent crude, and some of our new oil is sold at lower prices because of transportation issues, crude oil is a fungible commodity and so our oil price will stay around the $ 100/barrel level. Natural gas price will not stay as cheap as has been the case over the last few years as demand from regions where gas costs $ 10-15 per MMBtu (versus $ 3-5 here) will have an upward effect on our price as export terminals start operations. But we will maintain a substantial cost advantage over most other countries.