Reports of the death of U.S. shale have been greatly exaggerated.
In its latest Short Term Energy Outlook, the US Energy Information Agency (EIA) published preliminary data that, once confirmed, would represent a turning point in American energy history.
Not only did the United States reach a record-breaking 12.8 million barrels per day (bpd) of oil production in November – a new high watermark for the industry – the country achieved something yet more impressive: in the month of September, the United States exported more petroleum products than it imported. If verified in survey-collected monthly data, it would be the first time (in a month-long period) that the United States sold more petroleum than it purchased abroad since EIA records began in 1949.
For the world’s leading oil buyer this is a big deal. America consumes just over 20% of the globe’s 99 million bpd of daily crude production, with China holding the number 2 spot at 13% and India in a distant 3rd at 5%. America’s voracious appetite for oil has always been a strategic Achilles’ heel, with that vulnerability put on display for the world to see during the 1973 Oil Crisis. A chronic hypersensitivity to oil supply crunches and price volatility helped shape US foreign policy – it is the driving force behind our partnership with the historic oil market maker Saudi Arabia, the reason the US Navy’s 5th Fleet patrols the critical choke points of the Gulf (the Strait of Hormuz), the Suez Canal and the Strait of Bab al Mandeb – the southern entrance to the Red Sea.
Oil dependence was the best national security justification for America’s participation in the Gulf War, preventing Saddam from adding Kuwaiti, and potentially Saudi and other OPEC oil production to the Iraqi dictator’s war chest.
But the shale revolution, which combined the technologies of horizontal drilling, hydraulic fracturing, and seismic imaging, allowed America’s oilmen and women to extract previously inaccessible oceans of shale resources. The last decade has turned the “US oil sensitivity” narrative on its head.
Today the US leads the world in the production of petroleum products, including crude oil, petroleum liquids and biofuels with 17.9 million barrels per day, or 18% of the petroleum market. This month, the U.S. was ahead of Saudi Arabia, which reached 12.4 million barrels per day or 12% of the world’s total output, and Russia with 11.4 million barrels per day or 11% of the global market.
Keep in mind that in January of 2019, US production peaked at 11.4 million bpd. This means that in less than one year, America’s crude output grew by the daily supply of Libya (1.16 million bpd), or almost twice that of Venezuela (644,000 bpd). Since 2016, when output hovered at 9 million daily barrels, the United States has added an Iraq’s worth (4.45 million bpd) of oil to the global market.
This massive shale-fueled production climb, with the Permian Basin of Western Texas leading the charge, has allowed the United States to reach the once unimaginable “net exporter” status. Permian output is the primary driver of EIA’s forecast crude oil production growth, and the agency predicts Permian production to grow by 915,000 bpd in 2019 and by 809,000 bpd in 2020.
In September the US exported 140,000 bpd more total crude oil and petroleum products than it imported; and total exports exceeded imports by 550,000 bpd in October. The EIA expects total crude oil and petroleum net exports to average 750,000 bpd in 2020 compared with average net imports of 520,000 bpd in 2019. The agency estimated average for 2020 is 13.2 million bpd.
This is truly an exciting time for US energy policy – one that many would have never imagined. American politicians would be suicidal to kill the goose that lays the golden egg for the American economy and gets the U.S. off the leash of authoritarian petrostate dependency.
With Assistance from James Grant