The headline-sweeping news led by the Associated Press this week to the effect that the US is poised to overtake Saudi Arabia as the world’s largest producer of oil buries a few facts and lends an odd perspective to the situation.
But it’s great for the elections, and surely makes Americans feel optimistic about a future independent of foreign oil.
First, here’s the headline news.
• US oil output is surging as an amazing pace thanks to high prices and new drilling methods
• US production of liquid hydrocarbon production (including crude oil—and this is key) could rise 7% this year to nearly 11 million bpd on average
• For four straight years, US oil production has been rising and 2012 has seen the biggest gains since 1951
• Saudi Arabia produces around 11.6 million bpd—so look out, the US is catching up, fast
Here’s what’s buried, because it makes for a bulky headline and a less sexy story.
The fact that it would be somewhere around 2020, barring any dramatic events, that the US would overtake Saudi Arabia is not mentioned in most headlines, though one can come across it half way down the story. By 2020, US production could reach 13-15 million bpd. Saudi output is predicted to remain relatively even from now until 2017, after which there are no predictions.
Skewing the perspective somewhat is the fact that the US overtaking Saudi Arabia is not unprecedented. It’s happened before, specifically in 2002, when the Saudis responded to 9/11-inspired low oil prices and cut production.
Does it mean oil independence? No. Even in this benchmark year of 2020, with the US as the world’s largest oil producer, Americans will rely on imports to meet their 18.7 million bpd (and growing) demand. Only major achievements in the area of fuel efficiency and renewable energy will lessen (let alone remove) this dependence on foreign oil.
There is also the issue of exports, and a little matter of Big Oil’s designs to export domestically produced oil for higher profits. Production won’t necessarily go to meet US demand, though it will mean more jobs and more money to spend on foreign oil. It also doesn’t mean lower gas prices.
The jump in US oil production is in many ways a result of the resumption of production following the 2010 BP oil spill, and the combination of new drilling techniques. At the same time, the high price of oil has given the majors the investment capacity to try out new techniques and expand exploration activities.
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Despite this, and despite the fact that the US is certainly ramping up production at an impressive pace, there is some confusion by way of data interpretation.
For now, the US is still quite far behind both Saudi Arabia and Russia (the second largest producer). Furthermore, the Saudis can produce their crude more easily and at a lower cost (they don’t need to rely on these new, expensive drilling techniques to extract from shale rock). So just looking at the current output numbers and pace isn’t enough to get a full picture.
The headline news refers not only to crude oil but also “other liquid hydrocarbons” like natural gas and biofuels. The addition of these other liquid hydrocarbons lure the audience away from the fact that we’re not just talking about crude oil production. This tactic, of course, makes for a more attractive picture of the future but ignores that fact that only crude counts.
By. Charles Kennedy of Oilprice.com