It is the most remarkable economic story of our time and it comes in the midst of the Obama economy’s miserable performance.
The United States of America leads the world again in petroleum production, which includes crude oil, natural gas, and other liquids. We’re number 3 in crude oil production behind Russia and Saudi Arabia and the Financial Times notes that we will eventually surpass both countries and become the leading producer of crude oil in the world.
Four decades of declining oil production has been reversed in just the last 5 years.
Petroleum production, including crude oil and related liquids, known as condensate, and natural gas liquids (NGLs) such as ethane, was 11.27m barrels per day in April, almost equalling the peak of 11.3m b/d reached as an average for 1970. Recent growth rates suggest that it has now exceeded that figure.
The composition of US production today is not the same as in the early 1970s, in that it has a higher proportion of NGLs, which have a lower energy content and value than crude oil. Crude production of 8.3m b/d in April was still well short of its record high of 10m b/d in November 1970.
Even so, the rebound in US output has refuted claims that it was in irreversible long-term decline. Forecasts from the US Energy Information Administration suggest that crude production will also come close to its 1970 peak in the next few years.
The US is already the world’s largest producer of oil and gas, taken together, and is one of the top three in terms of oil alone, alongside Russia and Saudi Arabia.
The US boom is in sharp contrast to oil production elsewhere in the world, which is constrained by decline in mature areas such as the North Sea and political and security issues in countries such as Iraq and Syria. UK oil production has continued a steep decline in recent years, falling by more than two-thirds from its high point of just under 3m b/d in 1999.
New technologies like fracking and the high cost of oil have allowed us to get at reserves previously unavailable. And leading the way is the American entrepreneur:
The US oil industry has been transformed by the innovations of smaller independent companies that pioneered the development of shale oil in the Bakken formation of North Dakota and the Eagle Ford in south Texas.
Advances in the techniques of hydraulic fracturing and horizontal drilling have made it possible to extract previously inaccessible resources, and high oil prices made it commercially attractive.
One expert believes the US could hit 20 million bpd by 2020.
The growth in production in North Dakota has been phenomenal. The US Geological Survey keeps raising the estimate of proven, retrievable reserves in the Bakken Formation. It currently stands at about 8 billion bbl but with the technology to extract it improving by leaps and bounds, no one can guess how much of the estimated 80 billion bbl in the 220,000 square mile expanse of the Formation will actually be recovered.
In April, North Dakota surpassed the milestone of averaging 1 million bpd. The state has seen its oil production increase twelve-fold over the last decade from only 83,233 bpd in April 2004 to 1,001,149 bpd in April this year.
1) In April, the state’s average daily oil production increased by 26.1% compared to a year earlier, which was the largest year-over-year gain in three months. Remarkably, in only the last 30 months, oil production in North Dakota has almost doubled from 510,534 bpd in November of 2011 to more than one million bpd in April.
2) For the fifth month since last summer North Dakota produced more than 12% of all US oil in April. In November 2009, North Dakota’s oil production represented only 4.5% of total US crude output. Due to the phenomenal growth of oil output in the shale-rich Bakken fields, North Dakota’s share of US crude production has gradually increased, and is now consistently above 12%.
3) In dollar terms, the oil produced in North Dakota in April had a daily market value of more than $102 million at the average oil price of $102.07 per barrel for West Texas Intermediate (WTI) oil during the month. For the entire month of April, that would put the market value of North Dakota oil at more than $3 billion, setting a new all-time record for the dollar value of the state’s monthly oil output.
4) The Bakken oil fields in western North Dakota produced more than 937,000 bpd in April for the first time ever (see brown line in chart), and a new all-time monthly output record of 937,263 bpd was established, which also represented a new record-high 93.6% of the state’s monthly oil production. In contrast, the Bakken region produced less than 9% of the state’s oil output at the beginning of 2007, before breakthrough drilling techniques (hydraulic fracturing and horizontal drilling) were able to tap into a bonanza of unconventional oil in the shale-rich areas of western North Dakota. At the current pace, production in the Bakken oil field is on track to surpass the million bpd milestone by July or August of this year and join an elite group of only ten super-giant oil fields worldwide that have ever produced at the million barrel level at their peak daily production.
It should go without saying that the government is not picking winners and losers in the Bakken oil fields. No wildcatter is getting a subsidy from the energy department. They do receive the normal tax deductions on equipment and expenses — but the government isn’t deciding who gets them.
You will note that the president has been mum about this miracle. He would look awfully silly if he bragged and took credit for the increase in oil production when he is making war on a by-product of petroleum — carbon dioxide.
But Republicans should be touting this achievement to the skies. Innovation, daring, risk taking, and success via hard work is not dead in America, as much as the liberals have tried to kill it. And North Dakota is reaping the benefits:
The shale boom continues to make the Peace Garden State America’s most economically successful state – with growth in employment and personal income that lead the nation, the lowest state jobless rate in the country at 2.6% in April (and the lowest monthly jobless rate in North Dakota history), an enviable and whopping state budget surplus approaching $2 billion, the highest state GDP growth in 2013 of 9.7%, strong housing and construction markets (almost 9,000 permits were issued last year which is an all-time record and more than 3 times the permits issued four years ago in 2009), thousands of landowners who have become millionaires from oil and gas royalties (estimated oil royalty payments of more than $20 million every day in April, at 20% of the approximately $102 million in market value calculated above; and an estimated additional $700,000 in payments every day for natural gas royalties), and jobless rates in 17 of the state’s 53 counties at 2.5% or lower in August (with Williams County at only 0.90%, the lowest county jobless rate in America).
There are some naysayers who believe that the boom can’t last, that fracking is doomed, that the fields will age quickly, or that there just isn’t the amount of reserves that some geologists are claiming. We’ll see. Meanwhile, in dismal economic times, North Dakota’s success story points the way to a brighter energy future.