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The U.S. Might Soon Lose Its No.1 Position In Petroleum Production

Petroleum Refinery

In 2015, the U.S. was the largest producer of petroleum and natural gas hydrocarbons in the world by a wide margin, according to U.S. Energy Information Administration (EIA) estimates. While that sounds great, the reality is a bit different, and Russia and Saudi Arabia are having the last laugh.

Holding the clunky title of ‘World’s Largest Producer of Petroleum and Natural Gas Hydrocarbons’ is an honor on some level, but if you dig a bit further below the surface and unravel the creative mathematics, the details of this story become a bit less impressive. And even less so when we consider that U.S. production of crude oil—the crème de la crème of petroleum products—is falling, and both Russia and Saudi Arabia produce more in this battle for supremacy.

When it comes to total petroleum production, the U.S. is trailed by Russia and then Saudi Arabia, as shown in the chart below.

(Click to enlarge)

In the above chart, the darker portion represents petroleum production and the lighter shade represents natural gas. The chart shows that the U.S. produced close to 15 million barrels per day of petroleum fuels in 2015.

Nevertheless, the latest Weekly Petroleum status report by the EIA shows that the U.S. produced only 8.76 million barrels per day of crude oil in the week ending 20 May 2016.

We might assume that this means U.S. crude oil production halved in 2016, but that is not the case. We need to understand the terminology to fully comprehend the charts. The definitions provided on the EIA website can help us understand the terminology and the chart better.

The above chart shows the production of total petroleum—a broad category that includes crude oil, as well as other petroleum products derived from crude oil and other liquids—namely natural gas liquids.

Crude oil is a mixture of hydrocarbons, which is found in liquid form in the reservoirs, and it retains its liquid form when extracted to the surface.

Petroleum products are processed from crude oil and other liquids at petroleum refineries, from the extraction of liquid hydrocarbons at natural gas processing plants, and from the production of finished petroleum products at blending facilities.

Though the petroleum products have many uses, most natural gas liquids can’t be used to make gasoline, and just as importantly, they contain only about two-thirds of the energy content of crude oil. Related: When Will Solar Overtake Oil?

The chart below shows the U.S. crude oil production, which peaked in mid-2015, and since then is in a declining trend. The U.S. produced an average of 9.4 million barrels of crude oil in 2015.

(Click to enlarge)

In sharp contrast, unlike the United States, the bulk of the Russian and the Saudi petroleum production consists of crude oil.

The Saudi’s produced 10.2 million barrels per day of crude oil in 2016, according to Saudi Aramco’s 2015 annual review, while Russia produced 10.2 million barrels of crude oil per day in 2015.

While both Russia and Saudi Arabia continue to pump oil at record levels in 2016, it is a different case with U.S. oil production. The bulk of U.S. production came from the shale oil drillers, and since the drop in crude prices, 77 North American oil companies have declared bankruptcy, according to the Wall Street Journal, which led to the production falling below 8.8 million barrels per day. Related: Oil Heading for $60

Though the rally in crude oil prices from the lows of $27.10 per barrel to the current level of $50 per barrel will help the shale oil drillers to continue pumping, any drop towards the lows again will bring in a fresh wave of bankruptcies.

So although the U.S. may rightly call itself the world’s largest petroleum and natural gas producer, it’s a rather unimportant—and some might say meaningless—fact when viewed in isolation apart from crude oil, and Saudi Arabia and Russia have no reason to be worried about losing such an inconsequential title.

By Rakesh Upadhyay for Oilprice.com

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