The global crude oil industry has a new king — the United States.
According to the U.S. Energy Information Administration, or EIA, the U.S. is producing 11.7 million barrels of crude oil each day, a new all-time high. America has now overtaken both Russia and Saudi Arabia as the world’s largest producer of crude oil.
In the past two years, U.S. crude oil production has skyrocketed by nearly 40 percent. Next year, U.S. production is expected to further increase — to 12.1 million barrels per day. But what exactly is behind this resurgence in the U.S. oil industry?
For decades, U.S. oil producers have been challenged to cost-effectively capture crude oil from America’s shale oil deposits. The crude oil is trapped inside tiny low-porous holes within the shale rock. But recent technological advancements in horizontal (sideways) drilling and hydraulic fracking have now opened up America’s shale oil fields — some containing the world’s largest untapped reserves of crude oil. Fracking uses a highly pressurized mixture of water, sand and chemicals to break up the underground shale rock, releasing the crude oil trapped within.
Much of the explosion in shale oil production has occurred in the Bakken region in North Dakota and Montana and the Eagle Ford region in Texas. But the Permian region, with its vast shale oil reserves in western Texas and eastern New Mexico, has been the true juggernaut of U.S. crude oil production.
Though just 250 miles wide by 300 miles long, the Permian region has become an oil producing beast. In just three years, Permian production has doubled to 3.6 million barrels per day and now accounts for 30 percent of all U.S. crude oil production. Since January 2016, the number of drilling rigs in the Permian has risen from 200 to 493 — representing more than half of all oil rigs in America. In 2019, Permian production should rise to 3.9 million barrels per day. In 2023, it should reach 5.4 million barrels per day. In fact, if the Permian region were its own country, it would soon be one of the Top 5 oil producing nations, alongside Iraq, Iran and Canada.
The EIA estimates that 43 billion barrels of untapped crude oil remain in the Permian region. Some experts claim its reserves are much greater, as high as 500 billion to two trillion barrels. The Permian could potentially dwarf the world’s largest known oil reserve — Saudi Arabia’s legendary behemoth, the Ghawar oil field — which has estimated oil reserves of 70 billion barrels. Using the EIA’s conservative estimate of 43 billion barrels, the Permian would keep pumping 3.9 million barrels per day for the next 31 years. Using the higher estimate of two trillion, the Permian oil reserves would last for 1,404 years.
The U.S. oil industry has long been wanting to free itself from the market manipulation of OPEC (Organization of the Petroleum Exporting Countries). OPEC is a 15-nation cartel, led by its de facto leader Saudi Arabia, that accounts for roughly one-third of the world’s crude oil production.
In October 2014, in an effort to regain its share of global crude oil production, OPEC initiated a strategy that sent the global price of crude oil plummeting — from more than $100/barrel in 2014 to under $30/barrel in January 2016. OPEC’s strategy decimated the U.S. oil producing industry, as ultra-low oil prices made most oil wells unprofitable. As a result, 80 percent of America’s oil wells shut down and many producers simply closed their operations.
Armed with the latest technological developments, America should achieve its oil independence and become a net exporter of crude oil in the next few years. For the first time in American history, U.S. crude exports are soaring. In 2012, America exported, on average, 67 thousand barrels per day. Today, the pace of crude oil exports is two million barrels per day.
If OPEC wants to manipulate the price of crude oil, it certainly has the production clout to do so. After all, crude oil is a global commodity, subject to global forces of supply and demand. However, America’s crude oil resurgence has moved us from simple pawn to global power. And finally, America is competing on a level playing field.