The Upswing: U.S. Oil Production
Imagine coming across a headline that stated “VHS tapes are making a comeback!” You might feel a bit surprised and confused: haven’t we grown past this? Aren’t there better solutions out there for media consumption now?
As our world and technology continues to evolve and change year over year, the last thing you might expect is to hear that traditional technology or power sources are seeing a new revolution. Although VHS tapes might not be making a comeback (apologies to all the collectors out there), there is an equally surprising event happening in the power sector.
Shale reserves and petroleum oil production is seeing the dawn of a new day. Despite aging oil fields, national reports from the 2017 production year showed that U.S. oil production is higher than ever before. Even 40-year veterans in the field are surprised by the results, with CEO of British Petroleum (BP), Robert Dudley, stating: “I cannot remember ever in my career having seen a negative decline rate.”
What does this mean for U.S. oil production? Will this affect other means of energy production, such as renewable energy? Although there are many potential effects this news might have on the world, the biggest effect might possibly be in the economic shifts for oil across the globe.
The BP Report
Over the past few years, BP has seen a steady decline in production from the majority of their older oil wells, and drilling new sites has become increasingly rare. New drill sites often provide the best results, while older wells are expected to eventually run dry.
Luckily for BP, that presumption proved false in the fourth quarter of 2017. The company saw a 12 percent surge in upstream production (exploratory drilling in underground and underwater sites), the highest it had been since 2010. Last year also saw the creation of seven new sites for BP. Altogether, this provided BP with a $2.1 billion-dollar boost in the final quarter, with the company’s total yearly profits wrapping up at around $6.2 billion.
However, BP was not the only corporation to experience a boost. As the International Energy Agency (IEA) reported (and as cited by OilPrices.com): “[l]ast year, [...] oil production from legacy fields worldwide declined by a more modest pace, of less than 6 percent, compared with 7.5 percent a year earlier.”
The majority of BP’s wells are located in the United States, many of them in the Gulf of Mexico. However, other countries, such as Saudi Arabia, Russia, and China, are also heavily producing oil in their regions. Surprisingly, the United States has risen to second place in overall oil production (10.59 million barrels per day), surpassing Russia (10.3 million barrels per day), but falling short of Saudi Arabia’s ability to produce 11.75 million barrels a day. By 2023, it’s expected that the U.S. will produce close to 12.1 million barrels a day.
Oil Versus Renewable Energies
Looking at the numbers, one might assume that U.S. oil production still has a promising future. If anything, the increased production of U.S. oil should make us less dependent on international oil, right?
Unfortunately, that is far from the truth. Although U.S. oil production is increasing, the United States still expends more oil than it produces. Unlike other countries, which have invested in renewable energy sources or have less per capita cars per citizen, the U.S. is still leading the pack in terms of oil-reliant sources. This means that—despite the promising numbers from BP—the U.S. still has to import oil from Mexico, Canada, and other international sources.
However, this also shows a promising future for renewable energy. Already, many states across the country are reconsidering their dependency on oil and are instead considering other forms of energy. Offshore wind farms, hydraulic electrical plants, and solar power farms have been increasing in popularity and use, and for good reason. Renewable energy sources have multiple benefits: they are proving to be cleaner for the environment and local populations, as well as more cost effective for states, and can provide a promising boost to the local job market.
In states like New Mexico and North Dakota—where oil production has increased in recent years—the local governments have been fortunate enough to benefit from oil production, for now. However, despite any amount of economic surplus this might provide the local population, the economy is still left vulnerable to international oil pricing and market shifts. If the oil market plummets, the local populations will feel the effects.
In many ways, renewable energy sources could help prevent that possibility. Unfortunately, it might prove too difficult for some states to make the transition.
Growing Oil and Growing Prices
Despite the volatility of the oil market, there is still a chance that growth in this industry will continue on for some time. According to the Wall Street Journal, the U.S. is expected to continue surpassing Russia in oil production, and by 2023 the U.S. will be producing 12.1 million barrels a day.
This growth is due to a number of factors. Technological advancements, such as industrial automation, have helped improve the efficiency of drilling sites. Additionally, the job market for civil engineers is growing in availability and in employee numbers, with states like Texas, California, and Florida leading the pack in hiring trained specialists for oil field maintenance.
The end goal for the U.S. seems to be simple as well. As the Wall Street Journal noted, “[o]nce heavily dependent on imports from the Middle East, the U.S. is getting closer to achieving its goal of producing enough crude to meet domestic demand for refined products like gasoline.
Of the 6.4 million new barrels of oil that will be pumped every day between now and 2023, almost 60 [percent] will come from the U.S., the IEA said.”
However, U.S. produced oil will leave the states as well. Exporting oil will become an economic priority for the U.S., and within five years the IEA expects the U.S. to be a leader in oil exports—doubling its current exports to 4.9 million barrels a day by 2023.
Saudi Arabia is expected to become a world trade rival against U.S. oil production. However, the Saudi government is also known for holding back on overall capacity, making themselves into a “swing supplier” that could influence the market when supply from other world providers is limited.
Despite all this, the IEA also wonders if oil consumption will slump in the coming years as more countries and civilians invest in alternative forms of energy. Will oil supplies remain high to meet the demand of the public? Or could it be too late for the oil companies to keep up interest in their fuel source?
As for pricing, it’s expected that the oil market will continue to fluctuate, but the IEA advises companies to start spending again to avoid a potential crisis. The last dramatic change in oil pricing occurred in 2014, when prices collapsed due to shifting investments. This change affects almost every oil supplier—from big to small—causing them to be more cautious with their spending.
However, if crude oil supplies dwindle, then prices will skyrocket, and many companies will struggle to maintain profits—even oil magnates such as BP.
Although BP has shown promising results in its fourth quarter of 2017, there are still many questions left unanswered for the future of U.S. oil production. The U.S. has the potential to become a strong contender in the international trade of oil, but supply is still limited, and alternatives are becoming increasingly available. Will America continue to depend on domestic oil production? Or could we be on the brink of shifting technologies yet again?