Anyone following recent Platts news feeds like Oilgram News and Global Alert now knows that US oil production is rising again at a fairly significant level and shows signs of holding above the 5 million b/d mark for the next 10 years.
As the journalist responsible for compiling the data that substantiates those results and the interviewing of experts to explain the reasons, however, I have a confession to make here in the blogosphere.
While working on this startling tale of actual US oil production growth, I was continually troubled by two nagging questions in the back of my head: So what? Who cares?
Now I toss these questions into the blogosphere for anyone to answer. If any intrepid bloggers want to add their meaning to the data, blast away. And, to set the stage, here's a recap of the basic data to help sharpen your scalpels for the surgical analysis to follow.
- With US oil production averaging 5.268 b/d through October, the nation should notch its most dramatic annual percentage increase in oil output since 1970, when US oil production officially peaked at 9.637 million b/d. If that 5.268 million b/d figure holds through December, 2009 would show a 6.4% boost from the 4.95 million b/d average of 2008 and rank as the best US oil production year since 2004 when output averaged 5.419 million b/d.
- New deepwater fields in the Gulf of Mexico emerge as the primary driver for this turnaround with the US Minerals Management Service predicting a new Gulf record for oil production by 2011 with 1.635 million b/d.
- Add the expected impact of growth in North Dakota's Bakken Shale as well as the wild card of other potential discoveries elsewhere onshore or in the Gulf, and you have the reasons why an expert like Peter Jackson from IHS CERA believes the US will post annual production levels above 5 million b/d for the next 10 years.
Again, I ask: So what? Who cares?
A provocative question, and here's why I think it's important:
--A few years ago, this wasn't supposed to happen. The decline in the US was thought to be inexorable. And yet it has reversed on the back of just two players: the Gulf of Mexico and the Bakken. What would US production be if added to that were the eastern Gulf of Mexico..ANWR...more offshore California drilling? Or onshore California, from the big Oxy discover of earlier this year.
--Markets don't need to have percentage changes of 20,30% to be affected significantly. Let's say the US increase in a given year was 500,000 b/d. And let's also say that in that year, US demand, which may have peaked even after the recession's bite ends, declines 200,000 b/d in a year. That's a 700,000 b/d hit from one country on import flows, affecting not just crude imports but presumably things like gasoline exports to the US from Europe or India. That could be significant.
--Continuing increases from the Bakken combined with more out of Canada's shale bodes well for inland US refineries, who were supposed to be headed to the dustbin of history.
--Growth in oil and gas production adds jobs a lot faster than much-ballyhooed green jobs.
That's my humble opinion.
Direct and indirect employment, retention and development of skilled workforce, payment of Federal and state taxes and royalties from increased domestic oil & gas production are economically beneficial. Absolutely.
It is equally certain that most of the U.S. midstream and downstream infrastructure is rusting to pieces, and the refining industry barely survives on the thinnest of profit margin. The political outlook is grave. If oil companies book profits on rising prices, you know perfectly well what consumers and politicians will say and do about it. No one is going to drill offshore California or ANWR, period.
My greatest concern is that a few years of marginally higher domestic production will end in tears financially, as massive, reckless investment in shale fails to deliver expected payback.
5:15 PM After reviewing ongoing weakness in downstream operations, Chevron (CVX) says it will pull Chevron and Texaco brands from 1,100 filling stations in the eastern U.S., accounting for 8% of sales volume, by mid-2010. [Seeking Alpha]
Re Gary Taylor's question.
The technicians for whom extracting the more difficult forms of oil will care. The Peak Oilers should care -- but probably won't as it helps to debunk their hypothesis.
Anyone interested in marginal production should care. How much does the extra oil cost to produce and does this demonstrate that open markets encourage investment in difficult and/or marginal fields when closed markets ensure only limited investment in otherwise low-cost production?
We're now seeing US shale gas starting to pique the interest of gas companies working in Europe. Are we likely to see Europe seeing whether it can follow suit in oil?
The increase in US production doesn't change the market in the short run, but in the long run it may have considerable impact. Not least, it may contribute a buffer while governments and consumers work out how to move on from the fossil fuel age, not because the world is running out of coal and oil and gas, or because such fuels are too expensive, but because of concerns that they contribute too much to global warming.
Lastly. what impact does this have on the way US public opinion views oil? Will it make Americans more complacent about such issues as fuel gluttony or global warming? Perhaps this is one audience that, if it chose NOT to care about these increases, might be doing the world a favour.
Cheers John
With newly developed EOR methods and means there are billions bbls of oil that can be recovered from existing and abandoned US oil fields where about two thirds of the oil is left in place un-recovered.