United States: The New Eldorado For Hydrocarbons?

The United States’ production of hydrocarbons has increased so much that the U.S. could exceed Saudi Arabia and become the number one world producer in 2020. This increase in production was caused by the high price per barrel, which makes the new method of extraction of oil and shale gas by hydraulic fracturing profitable.

Will the U.S. become the largest producer of hydrocarbons in the world? It seems quite likely, at least according to predictions made by the U.S. Department of Energy, which includes crude oil and other types of liquid hydrocarbons, such as biofuels, in its statistics.

The New Middle East

According to the U.S. Energy Information Administration, production should reach a record 11.4 million barrels per day in 2013. This would make the U.S. the second world producer behind Saudi Arabia, which should reach 11.6 million barrels per day the same year. This year the total production is likely to increase by 7 percent from last year and reach an average of 10.9 million barrels per day. That is the largest production hike in one year since 1951, which was a surprise even to experts. According to Citibank, we can expect an output ranging from 13 to 15 million barrels per day on average in 2020, turning the United States into a new Middle East.

Imports Reduced by Half

The U.S., which consumes about 18.7 million barrels per day on average, will still need to import a portion of what they consume. However, thanks to this increase in domestic production and the progress made in higher-efficiency transport vehicles, imports could fall by half by the end of the next ten years. Even so, because world demand and the cost of extraction methods will remain high, this should not cause a drop in gas prices at the pump. The increase in production should, however, boost the U.S. economy as jobs will be created and trade will be balanced again.

Extraction Methods: Expensive and Controversial

This sudden rise in U.S. production is the result of two factors. In the early 2000s a new mode of extraction by hydraulic fracturing was developed, making it possible to extract oil and gas inside rocks, mainly in schist. The creation of this new method, more expensive than conventional processes, stemmed from the increase in the price of the barrel. Moreover, according to experts, this process would no longer be profitable if the price of the barrel went under $75. In consequence, the extractors would then be obliged to reduce their production — so they are getting the most out of the new method while they can.

It is also worth noting that, while gas and oil extraction by hydraulic fracturing has created many new jobs, the method is not problem-free. To extract oils and gas from schist, oil engineers use water, sand and pressurized chemicals in order to make rock burst. Gas escapes through the resulting fractures in the rock and is collected. However, there is a risk that certain fractures may reach the groundwater and pollute soil. Since the U.S. has authorized this new system of drilling, many voices have raised concerns and requested its prohibition.

Whether or not hydraulic fracturing will continue to be used in the U.S. essentially depends on Saudi Arabia and the price per barrel; Saudi Arabia’s strategy will in turn depend on the evolution of the stock prices on global markets. Saudi Arabia owns the largest crude oil reserves in the world and increases or reduces its output in order to keep the price of the barrel stable. However, according to the International Energy Agency, Saudi Arabia is likely to maintain regular production over the five next years. Therefore, extraction by hydraulic fracturing should continue to be profitable because the price of the barrel should not go under $89 until 2017. The U.S. will most likely remain divided about this issue, with proponents of hydraulic fractionation on one side and opponents on the other, but they will also benefit from this manna for some time to come.