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John Daly

John Daly

Dr. John C.K. Daly is the chief analyst for Oilprice.com, Dr. Daly received his Ph.D. in 1986 from the School of Slavonic and East European…

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EIA Predicts U.S to be 2013’s Largest Petroleum Producer

EIA Predicts U.S to be 2013’s Largest Petroleum Producer

The political gridlock in Washington has produced some interesting shutdowns as Congressional Republicans and Democrats sling charges of responsibility.

Want to visit the Lincoln Memorial?

Forget it.    

The U.S. Export Import Bank website? Also closed.

But some elements of the U.S. Department of Energy are doggedly soldering on, including some bureaucrats in the Energy Information Administration, who on Friday produced an article in its “Today in Energy” column with the simple but arresting headline, “U.S. expected to be largest producer of petroleum and natural gas hydrocarbons in 2013.”

The report notes, “The U.S. Energy Information Administration estimates that the United States will be the world's top producer of petroleum and natural gas hydrocarbons in 2013, surpassing Russia and Saudi Arabia. For the United States and Russia, total petroleum and natural gas hydrocarbon production, in energy content terms, is almost evenly split between petroleum and natural gas. Saudi Arabia's production, on the other hand, heavily favors petroleum.”

Related article: Brazilian Policies Scare off Oil Majors

“Since 2008, U.S. petroleum production has increased 7 quadrillion Btu, with dramatic growth in Texas and North Dakota. Natural gas production has increased by 3 quadrillion Btu over the same period, with much of this growth coming from the eastern United States. Russia and Saudi Arabia each increased their combined hydrocarbon output by about 1 quadrillion Btu over the past five years.”

“Comparisons of petroleum and natural gas production across countries are not always easy. Differences in energy content of crude oil, condensates, and natural gas produced throughout these countries make accurate conversions difficult. There are also questions regarding the inclusion of biofuels and refinery gain in the calculations. Total petroleum and natural gas hydrocarbon production estimates for the United States and Russia for 2011 and 2012 were roughly equivalent—within 1 quadrillion Btu of one another. In 2013, however, the production estimates widen out, with the United States expected to outproduce Russia by 5 quadrillion Btu.”

To say that the report has enormous implications for the future would be a vast understatement.
In just three years, from February 2010 to February 2013, according to the EIA's Petroleum Supply Monthly, in the U.S. lower 48 states onshore oil production, including crude oil and lease condensate, rose more than 2 million barrels per day, or 64 percent. Texas has more than doubled its production over the past three years, while North Dakota's output nearly tripled.

To put this increase in perspective, it is more than the output of Algeria or Norway, and over half that of Iran, which produces 3.5 million bpd, or more than the U.S. imports from the entire Persian Gulf region.

What was the reason for this dramatic increase? The EIA report notes, “In all of these states, increasing production was achieved by applying horizontal drilling and hydraulic fracturing to low-permeability rocks. In many fields (in basins such as the Permian, Uinta, and Powder River) enhanced oil recovery techniques such as CO2 injection are also boosting production from conventional reservoirs.”

The contentious practice of hydraulic fracturing, or ‘fracking,” is also largely responsible for the surge in U.S. natural gas production. Love it or hate it, the technique has unleashed so much natural gas that the EIA projects that U.S. natural gas inventories will reach 3,800 billion cubic feet by November.

Related article: How Iran Plays the Oil Game … and Wins

While the overall implications of the EIA’s startling news remain unclear as yet, a few overall aspects seem fairly clear at this point.

The burgeoning recent success of the U.S. hydrocarbon industries in adding output spell trouble for both renewable energy, which will find it harder to attract funding in such a scenario, and “King Coal,” which will see its market share drop even further.

In the international scene, the growing energy independence of the U.S. will lessen the political impact of both OPEC and Middle Eastern nations in Washington’s corridors of power, and energy companies are even beginning to discuss the possibility of exporting some of their surpluses, particularly LNG, to lucrative foreign markets such as East Asia.

All in all, a win-win situation for U.S. hydrocarbon energy producers.

By. John C.K. Daly of Oilprice.com

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