America’s Surging Oil and Natural Gas Production - Where Would We be Without it?
In addition to the obvious benefits (e.g., increased domestic economic activity, highest production and lowest import levels in decades, lower inflation and prices, investment dollars returning to America, increased federal and state tax and royalty income, reduced balance of trade payments, etc.) the United States has seen as a consequence of rising U.S. liquids (crude oil and natural gas liquids) and dry gas production, it is also worth noting what the world might have looked like had the tight oil and shale gas surge not developed as it did.
Less than a half dozen years ago, conventional wisdom held that America’s reliance on imported natural gas would continue unabated and that our greenhouse gas emissions would continue to rise. But with the surge in both shale gas and associated gas production (part of the oil resurgence), gas production is up, imports are down, and the displacement of coal by natural gas in power generation has led to a reduction in emissions. On the policy front, we are now debating how soon, and in what volumes, the United States will become a net exporter of gas rather than a larger importer. And while liquids currently drive our transport sector, natural gas fuels our industrial processes. The sudden surge in domestic supply and consequent reduction in prices has made the United States among the most attractive and competitive places in the world to locate energy intensive industries.
In the last two years alone, U.S. crude oil production has increased by over 2 million barrels per day (mmb/d) – providing the largest new increment of output anywhere in the world. When condensates and refinery gain figures are added, total U.S. liquids output now rivals or exceeds that of Saudi Arabia! As a consequence, when combined with reduced demand (the result of both economics and efficiency/alternatives) U.S. oil imports now represent less than 40% of American consumption (down from 60% in 2005) – enhancing our economic and energy security. On a volumetric basis, the combination of America’s reduced oil demand and increased liquids output over the past five years have effectively removed over 4.5 mmb/d of demand from global markets (roughly the size of Japan’s total oil consumption), and put downward pressure on global oil markets. The surge in U.S. oil production, coupled with lower global demand and increased production and exports from Saudi Arabia, in effect, made the imposition of sanctions on Iran manageable for global markets and economies.
Beyond, the volumetric and price benefits, however, the increase in America’s light oil from places like the Bakken and Eagle Ford have also helped reduce price pressure on premium light crudes, like Libyan, Angolan and Nigerian oils (recall the price spikes that followed the instability Libya experienced in 2011) and, in the process, rescued a handful of U.S. east coast refineries that were reliant on these lighter feedstocks from economic collapse.
Between January and March of 2011, global benchmark prices for Brent rose from just over $95/barrel to over $120. And while admittedly, we find ourselves in a different global market today, the supply risk posed by multiple, concurrent disruptions (e.g., Iraq, Libya, Nigeria, Angola, and elsewhere), coupled with ongoing sanctions (Iran) and the escalating violence and uncertainty - both real and anticipated – in places like Egypt and Syria should reinforce what should be readily apparent, namely that America’s surge has and continues to pay huge dividends for both the United States and the broader global economy. Just imagine where we might be without it!
Frank Verrastro is Senior Vice president and holds the Schlesinger Chair for Energy and Geopolitics at CSIS; Guy Caruso serves as a Senior Advisor to the Energy and National Security Program at CSIS; and Larry Goldstein, formerly the President of the Petroleum Industry Research Foundation (PIRINC) serves as a Senior Associate with the CSIS Energy & National Security program.
Commentary is produced by the Center for Strategic and International Studies (CSIS), a private, tax-exempt institution focusing on international public policy issues. Its research is nonpartisan and nonproprietary. CSIS does not take specific policy positions. Accordingly, all views, positions, and conclusions expressed in this publication should be understood to be solely those of the author(s).
© 2013 by the Center for Strategic and International Studies. All rights reserved.