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| FILE - In this Tuesday, July 26, 2011 file photo, Ben Shaw hangs from an oil derrick outside of Williston, N.D. U.S. oil output is surging so fast that the United States could soon overtake Saudi Arabia as the world's biggest producer. U.S. production of oil and other liquid hydrocarbons is on track to rise 7 percent in 2012 to an average of 10.9 million barrels per day. It's the fourth straight year of crude increases, and this year drillers are on track to post the biggest single year gain since 1951. |
NEW YORK (AP) -- U.S. oil output is surging so fast that the United States could soon overtake Saudi Arabia as the world's biggest producer.
Driven
by high prices and new drilling methods, U.S. production of crude and
other liquid hydrocarbons is on track to rise 7 percent this year to an
average of 10.9 million barrels per day. This will be the fourth
straight year of crude increases and the biggest single-year gain since
1951.
The boom has surprised even the experts.
"Five
years ago, if I or anyone had predicted today's production growth,
people would have thought we were crazy," says Jim Burkhard, head of oil
markets research at IHS CERA, an energy consulting firm.
The
Energy Department forecasts that U.S. production of crude and other
liquid hydrocarbons, which includes biofuels, will average 11.4 million
barrels per day next year. That would be a record for the U.S. and just
below Saudi Arabia's output of 11.6 million barrels. Citibank forecasts
U.S. production could reach 13 million to 15 million barrels per day by
2020, helping to make North America "the new Middle East."
The
last year the U.S. was the world's largest producer was 2002, after the
Saudis drastically cut production because of low oil prices in the
aftermath of 9/11. Since then, the Saudis and the Russians have been the
world leaders.
The United States will still
need to import lots of oil in the years ahead. Americans use 18.7
million barrels per day. But thanks to the growth in domestic production
and the improving fuel efficiency of the nation's cars and trucks,
imports could fall by half by the end of the decade.
The
increase in production hasn't translated to cheaper gasoline at the
pump, and prices are expected to stay relatively high for the next few
years because of growing demand for oil in developing nations and
political instability in the Middle East and North Africa.
Still, producing more oil domestically, and importing less, gives the economy a significant boost.
The
companies profiting range from independent drillers to large
international oil companies such as Royal Dutch Shell, which
increasingly see the U.S. as one of the most promising places to drill.
ExxonMobil agreed last month to spend $1.6 billion to increase its U.S.
oil holdings.
Increased drilling is driving
economic growth in states such as North Dakota, Oklahoma, Wyoming,
Montana and Texas, all of which have unemployment rates far below the
national average of 7.8 percent. North Dakota is at 3 percent; Oklahoma,
5.2.
Businesses that serve the oil industry,
such as steel companies that supply drilling pipe and railroads that
transport oil, aren't the only ones benefiting. Homebuilders, auto
dealers and retailers in energy-producing states are also getting a
lift.
IHS says the oil and gas drilling boom,
which already supports 1.7 million jobs, will lead to the creation of
1.3 million jobs across the U.S. economy by the end of the decade.
"It's
the most important change to the economy since the advent of personal
computers pushed up productivity in the 1990s," says economist Philip
Verleger, a visiting fellow at the Peterson Institute of International
Economics.
The major factor driving domestic
production higher is a newfound ability to squeeze oil out of rock once
thought too difficult and expensive to tap. Drillers have learned to
drill horizontally into long, thin seams of shale and other rock that
holds oil, instead of searching for rare underground pools of
hydrocarbons that have accumulated over millions of years.
To
free the oil and gas from the rock, drillers crack it open by pumping
water, sand and chemicals into the ground at high pressure, a process is
known as hydraulic fracturing, or "fracking."
While
expanded use of the method has unlocked enormous reserves of oil and
gas, it has also raised concerns that contaminated water produced in the
process could leak into drinking water.
The surge in oil production has other roots, as well:
-
A long period of high oil prices has given drillers the cash and the
motivation to spend the large sums required to develop new techniques
and search new places for oil. Over the past decade, oil has averaged
$69 a barrel. During the previous decade, it averaged $21.
-
Production in the Gulf of Mexico, which slowed after BP's 2010 well
disaster and oil spill, has begun to climb again. Huge recent finds
there are expected to help growth continue.
- A
natural gas glut forced drillers to dramatically slow natural gas
exploration beginning about a year ago.
Drillers suddenly had plenty of
equipment and workers to shift to oil.
The
most prolific of the new shale formations are in North Dakota and Texas.
Activity is also rising in Oklahoma, Colorado, Ohio and other states.
Production
from shale formations is expected to grow from 1.6 million barrels per
day this year to 4.2 million barrels per day by 2020, according to Wood
Mackenzie, an energy consulting firm. That means these new formations
will yield more oil by 2020 than major oil suppliers such as Iran and
Canada produce today.
U.S. oil and liquids
production reached a peak of 11.2 million barrels per day in 1985, when
Alaskan fields were producing enormous amounts of crude, then began a
long decline. From 1986 through 2008, crude production fell every year
but one, dropping by 44 percent over that period. The United States
imported nearly 60 percent of the oil it burned in 2006.
By
the end of this year, U.S. crude output will be at its highest level
since 1998 and oil imports will be lower than at any time since 1992, at
41 percent of consumption.
"It's a stunning turnaround," Burkhard says.
Whether
the U.S. supplants Saudi Arabia as the world's biggest producer will
depend on the price of oil and Saudi production in the years ahead.
Saudi Arabia sits on the world's largest reserves of oil, and it raises
and lowers production to try to keep oil prices steady. Saudi output is
expected to remain about flat between now and 2017, according to the
International Energy Agency.
But Saudi oil is
cheap to tap, while the methods needed to tap U.S. oil are very
expensive. If the price of oil falls below $75 per barrel, drillers in
the U.S. will almost certainly begin to cut back.
The
International Energy Agency forecasts that global oil prices, which
have averaged $107 per barrel this year, will slip to an average of $89
over the next five years - not a big enough drop to lead companies to
cut back on exploration deeply.
Nor are they
expected to fall enough to bring back the days of cheap gasoline. Still,
more of the money that Americans spend at filling stations will flow to
domestic drillers, which are then more likely to buy equipment here and
hire more U.S. workers.
"Drivers will have to pay high prices, sure, but at least they'll have a job," Verleger says.
