OPEC is starting to get nervous.
For the first time in 16 years, crude production has surpassed imports by 32,000 barrels per day in the United States. The U.S. was able to sustain its own energy by 88 percent in February – the highest level since 1986.
In late May, the U.S. hit 393.1 million barrels, an above-average inventory for this time of year, according to the Energy Information Administration
As of May 31, U.S. refinery input was 15.5 million bpd, an increase of 433,000 bpd above the previous week, operating at 88.4% capacity.
According to data from the EIA, crude imports hit 7.27 million bpd last week – a 549,000 bpd decrease from the week before. Meanwhile, production reached 7.3 million bpd.
In a five year period, production rose by 42 percent while imports dropped 26 percent, Bloomberg reports.
OPEC initially seemed unfazed by the surge in U.S. production, and at one point Saudi Arabia even welcomed the boom as a way to add new life to the oil industry.
But OPEC members are getting concerned, as was evidenced by a meeting in Vienna addressing the issue of rampant production from North America.
The U.S. also decreased its imports from Nigeria. West Texas Intermediate’s lighter and sweeter crude has long competed against the same blend from Africa.
Saudi Arabian imports into the U.S. hit a three-year low, and Venezuela’s fell to a 10-year low.
This supports Energy International Agency data, which suggests the U.S. is on a fast trajectory to becoming the world’s largest crude-bearing nation by 2017. As U.S. oil activity flourishes, Saudi Arabia will be forced to cut production as a result of lower demand.
Very few would have imagined the U.S. would become a major oil-producing power. But the seeds were always there.
Crude Production History
Texas was the original standard bearer of booming oil production in the 1900s. The first oil craze for the Lonestar State was in 1901, with the Spindle Top Oil discovery, producing 100,000 bpd. In 1919, Cushing, Oklahoma produced 300,000 barrels per day – accounting for 17 percent of oil production in the state and three percent of global production.
By the 1940s, however, the Cushing oil economy dwindled, and Texas took the lead.
The height of Texas oil production was in 1972, when production volume hit 3.4 million barrels. This has since been on the decline throughout the seventies and eighties.
Alaskan production picked up where Texas left off, when the Prudhoe Bay first went active in 1977. Oil volume thrived throughout Alaska in the 1980s at a time when the lower 48 states declined in production numbers.
Peak volume in Alaska was in 1988, when the North Slope yielded 2 million bpd. The Prudhoe Bay field alone generated 1.6 million bpd. At one point, the North Slope produced one-third of America’s oil.
But Alaskan production dropped 40 percent by the time 1998 rolled around – stemming from land restrictions, failing technologies, and dwindling reserves.
Now Texas is back in the oil spotlight, with such large discoveries as the Eagle Ford of South Texas and the Permian Basin of East Texas. Meanwhile, the Bakken of the North Dakota, first discovered on land owned by farmer Henry Bakken in the early 1950s, began steadily gaining production numbers throughout the decades until reaching a March 2013 record of 782,934 bpd in North Dakota.
The key that unlocked the modern oil bonanza is the combination of horizontal drilling and fracking. Fracking was first tested in shale areas during the early 1970s but was only recently combined with horizontal drilling. This has since gone on to unlock vital reservoirs throughout the United States
Continued research and development in new drilling techniques will secure future drilling growth.
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Future U.S. Crude Production
Imports will always have some role to play in the U.S. energy economy, but it will be far less as the U.S. becomes a giant on the world energy stage.
On a short-term level, U.S. oil production is expected to grow up to 3.9 bpd by 2018.
In the long-term, this country has a strong possibility of becoming fully independent from OPEC imports by 2035.
This is great news for investors because it means the North American boom is not just an eventual bubble ready to burst.
In places like the Bakken, drillers have yet to scratch the surface, and there is still a large portion of the Three Forks formation to explore.
Alaska could be a wild card in the future if the state government is able to foster enough growth.
There is a strong effort on the part of Alaskan officials to revive their fledgling oil industry through tax incentives, and so far companies like BP (NYSE: BP) have taken the bait.
In South Texas, over $28 billion in investments are expected to pour into the Eagle Ford in 2013.
On an economic level, domestic consumption will lead to lower gasoline prices. The U.S. would also be less vulnerable to the political and social instabilities of the Middle East.
More U.S. refineries can save money by refining domestic crude instead of relying on expensive imports, and many refineries are already doing so across the country. The oil sector has proven it can procure economic surplus and job growth in local communities.
The U.S. may be in such great energy shape, it could even compete with OPEC in the area of exports. It may seem like a far-off conversation to have, but many experts and analysts are tackling the issue early.
An interesting poll conducted by a Bloomberg Oil Forum in London captured a snapshot of how experts and analysts view the future of U.S. exports. 41% believed crude exports will never happen, but 22% think it would happen after 2023. 13% are holding out hope within the next five years, and 23% believe exports would occur between 2018 and 2023.
Currently, most U.S. crude exports ship from the Bakken to East Canada, where Canadian refineries can blend lighter crude from Uncle Sam with the heavier variety native to Canada. And Canadians are able to reduce imports from Africa and the Middle East as well.
If you thought the DOE was keeping a tight lid on natural gas reserves, no politician wants to be seen driving up gasoline prices by allowing energy companies to export crude en masse.
But don’t rule out the possibility if market forces dictate crude exports.
It will be interesting to see what the U.S. decides to do with its oncoming stature as an oil juggernaut in the coming decades.
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