- U.S. production to rise 7 per cent this year to nearly 11 million barrels a day
- Could reach 11.4 million barrels a day in 2013 – rivalling Saudi oil output
- Boom caused by high oil prices and new drilling techniques
PUBLISHED: 08:01 EST, 24 October 2012 | UPDATED: 18:15 EST, 24 October 2012
A US oil boom is set to push America past Saudi Arabia to become the world’s top producer.
Driven by high prices and new drilling methods, the US production of crude oil is on track for the biggest single-year gain for more than 60 years.
Analysts claimed yesterday that, if the growth in domestic drilling continues, America will soon overtake Russia and Saudi Arabia – and possibly become ‘the new Middle East’ in another decade. The boom has surprised even the experts.
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‘Five years ago, if I or anyone had predicted today’s production growth, people would have thought we were crazy,’ said Jim Burkhard, head of oil markets research at US energy consulting firm IHS CERA.
Production is expected to rise by 7 per cent to hit an average of 10.9million barrels a day this year. Energy Department officials say it will average 11.4million next year, just below the current Saudi output of 11.6million.
This will be the fourth straight year of crude increases and the biggest single-year gain since 1951.
And Citibank forecasts it could reach 13million to 15million barrels per day by 2020.
But it has not led to cheaper petrol. Prices are expected to stay relatively high for the next few years because of growing demand in developing nations and political instability in the Middle East and North Africa.
The last year the US was the world’s largest producer was 2002, after the Saudis drastically cut production because of low oil prices in the aftermath of 9/11.
Since then, the Saudis and the Russians have been the world leaders.
Americans currently use around 18.7 million barrels per day – but thanks to the growth in domestic production and the improving fuel efficiency of the nation’s cars and trucks, imports could fall by half by the end of the decade.
The increase in production has not translated to cheaper gasoline at the pump, and prices are expected to stay relatively high for the next few years because of growing demand for oil in developing nations and political instability in the Middle East and North Africa.
Still, producing more oil domestically, and importing less, gives the economy a significant boost.
Increased drilling is driving economic growth in states such as North Dakota, Oklahoma, Wyoming, Montana and Texas, all of which have unemployment rates far below the national average.
‘It’s the most important change to the economy since the advent of personal computers pushed up productivity in the 1990s’
– Philip Verleger, Peterson Institute of International Economics
Businesses that serve the oil industry, such as steel companies that supply drilling pipe and railroads that transport oil, are not the only ones benefiting from the boom in production.
Homebuilders, auto dealers and retailers in energy-producing states are also getting a lift.
The oil and gas drilling boom, which already supports 1.7 million jobs, is expected to lead to the creation of 1.3 million jobs across the U.S. economy by the end of the decade.
‘It’s the most important change to the economy since the advent of personal computers pushed up productivity in the 1990s,’ says economist Philip Verleger, a visiting fellow at the Peterson Institute of International Economics.
The major factor driving domestic production higher is a new found ability to squeeze oil out of rock once thought too difficult and expensive to tap.
Engineers have learned how to drill horizontally into long, thin seams of shale and other rock that holds oil, instead of searching for rare underground pools of hydrocarbons that have accumulated over millions of years.
To free the oil and gas from the rock, drillers crack it open by pumping water, sand and chemicals into the ground at high pressure, in a process known as hydraulic fracturing, or ‘fracking.’
The US oil boom has also been influenced by a long period of high oil prices and the recovery of production in the Gulf of Mexico following the 2010 BP well disaster and oil spill.
The most prolific of the new shale formations are in North Dakota and Texas. Activity is also rising in Oklahoma, Colorado, Ohio and other states.
Production from shale formations is expected to grow from 1.6 million barrels per day this year to 4.2 million barrels per day by 2020.
That means these new formations will yield more oil by 2020 than major oil suppliers such as Iran and Canada produce today.
From 1986 to 2008, crude production in the US fell every year but one – dropping by 44 percent over that period. The United States imported nearly 60 percent of the oil it burned in 2006.
By the end of this year, US crude output will be at its highest level since 1998 and oil imports will be lower than at any time since 1992, at 41 percent of consumption.
Whether the US supplants Saudi Arabia as the world’s biggest producer will depend on the price of oil and Saudi production in the years ahead.