The World’s Largest Oil and Gas Producer is Now … The United States
By G. Cook Jordan, Jr. and Lori A. Callaway
The United States has surpassed Russia and Saudi Arabia to become the world’s largest producer of crude oil for the first time since 1973 according to preliminary estimates from the Energy Information Administration (EIA).
The United States energy industry’s achievement is owed largely to the U.S. shale boom. Shale is a fine-grained sedimentary rock, classified as a “mudstone,” that can contain immense quantities of hydrocarbons trapped within the pore spaces littered throughout its body. Prevailing drilling technology pre-boom rendered the extraction of shale-based hydrocarbons economically unfeasible until around 2008, when two technologies coalesced to catalyze the boom that has propelled the United States back atop the global crude oil production landscape. These processes are horizontal drilling and hydraulic fracturing, or “fracking.” In short, horizontal drilling allows a wellbore to access a much larger fraction of a given hydrocarbon deposit, and hydraulic fracturing allows for the hydrocarbons in these deposits, usually shale formations, to travel from pore spaces in which they were previously trapped into the wellbore.
These advancements in drilling technology changed the game through allowing economical extraction of shale-based hydrocarbons, even in low oil price environments. Therefore, these technologies unlocked America’s shale resources, the largest in the world, which could contain up to 3.7 trillion total barrels of oil and natural gas, as estimated by the World Energy Council’s 2010 Survey of Energy Resources.
United States crude oil and natural gas production surged after 2008, with the period between 2008 and 2015 marking the largest oil production increase in U.S. history. During the period, production increased by approximately six million barrels per day, and the U.S. became the world’s largest natural gas producer. This increased level of production prompted the Organization of Petroleum Exporting Countries, or “OPEC,” to engage in an oil price war in 2014 to regain lost market share, which saw prices and production wither. However, the resilience of American drillers and an early-2016 rebound in oil prices gave rise to another production spike which has withstood a turbulent geopolitical environment and empowered the United States’ recent coup on the oil production throne.
In June and August of this year, domestic oil production reached 11 million barrels per day. EIA forecasts for 2019 suggest that the U.S. will export 11.5 million barrels per day throughout the year, which would continue to top expected output from Russia and Saudi Arabia. Much of current production growth is centered in the Permian basin of western Texas and eastern New Mexico, the Gulf of Mexico, and the Bakken region in North Dakota and Montana. Texas alone is forecasted to produce more oil than Iraq or Iran in 2019, which would make the territory the third-largest producer of crude oil in the world were it a country.
While the U.S. is still dependent on foreign oil and is thus exposed to geopolitical events’ contributions to price volatility, U.S. production has grappled leverage away from other major players in the global market. For example, American producers’ ability to weather OPEC’s price war and continue to gain market share in a low-price environment prompted an unprecedented strategic shift on the part of OPEC when, in 2016, it united with Russia and agreed to collectively cut production to upwardly manipulate prices. This strategy was effective, and the fact that OPEC was moved to partner with Russia to exert desired market influence demonstrates the United States’ newfound clout in the global oil landscape. Domestic production has also served to dampen security concerns through diminishing our reliance on foreign oil, again bolstering the degree of leverage held by Washington in the geopolitical arena. The U.S.’s newfound status as ‘the world’s most productive’ provides Washington with an asset in the country’s geopolitical agenda.