NCPA - National Center for Policy Analysis

U.S. Oil Gusher Blows out Projections

February 24, 2012

As oil prices have risen around the world, domestic production of crude in the United States has increased rapidly.  More companies are shifting their focus to deep-water deposits in the Gulf of Mexico as new technologies and higher prices have made extraction more feasible.  Additionally, breakthrough processes have made land extraction from shale sources more viable, says the Houston Chronicle.

  • The level of domestic oil production decreased over time to a level not seen since the 1940s, before making a complete about-face and increasing rapidly since 2009.
  • The number of rigs in U.S. oil fields has more than quad­rupled in the past three years to 1,272, according to the Baker Hughes rig count.
  • Including those used to extract natural gas, the United States now has more rigs than the rest of the world combined.
  • Whereas the Energy Information Agency had previously projected that U.S. production would peak at 6 million barrels in 2022, it adjusted this estimate upwards last month to 6.4 million barrels per day by 2025.

Increased production throughout the United States is a function of two important factors: new methods and technology that have lowered costs, and increasing demand worldwide that has driven up prices.  The combination of these two forces has made many production options more profitable.

  • Demand continues to increase in the short-term due to conflicts in some oil-producing countries, but also in the long-run because of increasing demand for oil in rapidly developing nations.
  • This has kept oil prices high, with the domestic benchmark West Texas Intermediate price reaching $103.24 per barrel last week.
  • Additionally, land production has increased, due in large part to breakthroughs in the extraction of crude from shale.
  • Two new techniques, horizontal drilling and hydraulic fracturing, have allowed three shale sites (two in Texas, one in North Dakota) to constitute 40 percent of the nation's land-based production.

Though consensus has not been reached as projections are difficult to verify, some believe that this increased production will allow the United States to challenge Saudi Arabia for the top producer of all forms of petroleum.

Source: Simone Sebastian, "U.S. Oil Gusher Blows out Projections," Houston Chronicle, February 19, 2012.

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