Crazy Crude

The growth in crude oil production has been simply crazy. Total production in the Permian Basin rose from levels below one million barrels per day in April 2011 to more than two million July 2016 to three in February 2018 to four less than a year later. Production levels are projected to double yet again in the next few years. Total Texas oil production has risen about 500% since 2010. A key point is that these increases began after decades of falling production. No one saw it coming to this degree. Just a decade ago, the talk was about “peak oil” and running out of energy.

One reason for the growth is that producers are getting more oil out of every well. In 2007, each rig in the Permian Basin region led to production of about 55 barrels per day, according to data from the Energy Information Administration. Even years later in 2014, production per rig was barely over 200, but then began to change dramatically, passing 400 barrels per day in 2015, and then consistently over 600 just a couple of years later. While costs to drill are also higher given the sophisticated methods and materials used, technological advances from exploration through completion have led to nothing-short-of-amazing increases in the amount of oil being recovered. It’s a similar story for natural gas, with production per rig far higher than in the past. Currently, the focus is on driving the costs down, with substantial results already and even greater expectations for the future.

One outcome of these production gains has been to reduce the needs for imports. It will be a while, if ever, before all imports are eliminated, partially because characteristics of crude vary and refineries are designed to process particular types of oil. The US refinery infrastructure still requires some crude imports to match up capacities and capabilities, but imports have decreased notably from the 2006 peak level.

Another outcome is a surplus of US crude – domestic demand for fuels and other refined products is not growing nearly as fast as production. Virtually all of the “new” petroleum will make its way to foreign markets in some crude or refined form. Exports increased from less than a half-million barrels per day three years ago to more than 2.5 million now. Export infrastructure is about maxed out, and new capacity is desperately needed. Port expansion and efficient use of resources and other terminal options will be part of the solution.

Exporting is essential to optimum development of the US energy sector. Moreover, world markets need the crude from the US to improve standards of living in emerging areas and allow for sustainable economic growth.