Despite last year’s hairpin turn in crude oil prices along with tectonic changes in the global energy landscape, the United States emerged in 2014 as the top world producer of petroleum and natural gas hydrocarbons (EIA).i Surpassing production in both Saudi Arabia and Russia, the US domestic shale oil and gas industry, along with conventional producers, delivered technological advancements and cost savings. In new wells, innovation enabled higher oil and gas production per rig to help the US progress toward an energy-independent future.ii
World petroleum prices, however, dropped more than 50% from peak levels in June 2014, when the price of Brent hovered at $115 per barrel.iii Prices for Brent dropped to $47 per barrel in December 2014 before restabilizing again in the $60 to $64 range by June 2015.iv
Analysts believe a "perfect storm" of factors converged to destabilize the petroleum and gas marketplace, including a temporary weakening of worldwide economies and lower demand for oil; robust crude production in Libya and Iraq despite wartime conditions; and a spike in US shale energy supplies that reduced demand for imports.v
More important, though, OPEC’s decision last November to keeping crude production quotas high rather than cutting back to shore up prices hurt many oil-dependent economies, including those of OPEC members themselves.vi In June 2015, at its biannual meeting, OPEC once again refused to cut production, endorsing a ramp up of more than 1 million b/d above the group’s 30 million b/d supply target, claiming it needs to maintain world market share.vii But OPEC has actually been losing market share worldwide – down 37 percent to just 31 percent between 2007 and 2015.viii Effectively relinquishing its role as world pricing regulator or “swing producer,”ix the cartel, led by Saudi Arabia, is conducting a thinly disguised price war to batter or knock out the emerging US shale industry.x Oddly enough, though, the pricing war has had a boomerang effect: it’s forced several struggling OPEC economies – Venezuela and Nigerian among themxi – into default or bankruptcy while giving non-OPEC members, including the United States and Canada, the opportunity to act as “swing producer,” increasing or drawing down oil and gas production and supplies as needed.
This is exactly the role the US has taken on. Our domestic energy producers responded to falling prices in 2014 by scaling back production, delaying new exploratory projects and decommissioning rigs. The slowdown was rapid but temporary. In fact, the US Energy Administration actually raised its estimate of US oil production by 90,000 b/d for fourth quarter 2014 and by more than 200,000 b/d in first quarter 2015. Today, the initial cuts in domestic drilling rates have curbed supplies, and all US oil production is expected to average 12.7 million b/d in 2015, up 800,000 b/d from a year ago.xii
This year, global oil demand is also up, averaging 93.3 million b/d in the first six months, up 1.6 million b/d on the year (IEA), with projections for growing demand continued strong throughout 2015 and beyond.xiii Although prices for Brent and WTI have settled in the $60-$65 range – call it ‘the New Normal’ – the US rig count, which had declined drastically after oil prices fell last year, is stabilizing again. Lower oil prices have given consumers and US manufacturers a boost and even created new energy efficiencies in oil production and drilling productivity that were not achieved before (see EIA Diagrams below). Even when the rig count goes down, new well oil and gas production per rig goes up, as can be seen in the EIA Drilling Productivity reports of the Niobrara region of Utah and the Bakken of North Dakota.
Technologies to extract both shale and the less expensive conventional crude from oil wells continue to advance rapidly. As they do, states like North Dakota, Texas, Utah, and Pennsylvania are becoming places of economic renewal –energy powerhouses capable of improving the quality of life and community while helping advance America’s diversified energy agenda.