Watch out OPEC, here come’s Saudi America

There was a time, many years ago, when the USA produced all the energy it needed domestically for its citizens. Then they all went out and bought cars as big as whales and the rest is history. The USA now accounts for about 20% of global energy consumption, although China is currently the world’s biggest consumer. Each American uses about three and a half times more energy than the average Chinese person.

Despite government moves to produce ever more energy-efficient vehicles and utilise more and more renewable energy sources, demand in the good ol’ US of A has doubled since the last time they were able to satisfy all of their domestic energy needs. Now, though, there is a growing belief that the USA can and will be able to satisfy all of its own energy needs. In the last presidential elections, both sides were talking about Energy Independence, an idea that no longer seems farfetched as the International Energy Agency (IEA) now predicts that by 2020, domestic production could be as high as 11.6 million barrels per day, making it once again the world’s largest oil producer…a Saudi America in some ways.

American production declined steadily from a peak of 9.6 million barrels a day in the 70’s, bottoming out at about 5 million barrels a day in 2008. Since that time, independent producers have been rapidly adopting and adapting new technologies of hydraulic cracking (see: America Tops World Gas Producer Rankings) which has seen domestic production rise to 7.4 million barrels per day, a 50% increase in just five short years. The Energy Information Administration, a US government body, believes that by 2019, production will exceed previous records as mentioned above; the IEA believes that the number will be much higher.

The resurgence of US oil and gas production is firmly rooted in the sustained higher prices for hydrocarbons, allowing for the exploitation for unconventional energy, that is, extracting hydrocarbons from oil sands and tight shale. Unconventional oil production needs a sustained higher price. The oil flows easily through porous rocks from which oil is normally produced, so one well can tap a large area and the well depletes slowly. In shale, the oil flows much slower and thus there is a need for many more wells, which will deplete rapidly; maintaining a field’s production means almost constant drilling. The IAE believes that maintaining production in the Bakken basin requires 2500 new wells a year, but a large conventional field in Saudi requires less than 60.

This adds up to a high cost of production, estimated at US$60 in the North Dakota Bakken and US$80 in the Texan Eagle Ford. This, though, could end up being good news for the rest of the world as, when oil prices rise, the USA gets drilling again and when it falls, they stop and production rapidly falls. This could then produce a sort of cushioning effect and create a future world where oil prices are relatively stable and average about US$100 per barrel. Although this is much, much higher than a decade ago, it is good news for consumers who will be able to grow accustomed to a regular price but perhaps not such good news for the beleaguered sage grouse who will eventually lose most of its habitat.


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