Has America Regained Its Peak Oil Production?

The United States reached its peak in oil production in 1970 at about 9.6 million barrels a day. This rate, however, did not last for very long. The barrels began to deplete, and production decreased to 5 million barrels a day in 2008. But with the advancement of American drilling technology and the utilization of horizontal drilling, U.S. petroleum production by nontraditional methods has increased to the point of exceeding the amount of imports for the first time in nearly two decades.

The production rate in the U.S. has increased from 7.4 million barrels a day in 2013 to 8.4 million barrels a day currently; it is expected to reach 9.2 million barrels a day in the coming year. The U.S. Energy Information Administration expects to record a new number for production in 2016, when petroleum production may reach a rate of 9.5 million barrels a day. This is because of a surge in shale oil production, as North Dakota’s production has increased from 200,000 barrels a day in 2007 to 800,000 barrels a day. Petroleum production in Texas has returned close to where it was 30 years ago, as production rates went from 2.5 million barrels daily in 1983, down to about 1 million barrels daily in 2009, and is now at 2.5 million because of the resurgence in shale oil production. The U.S. government expects American oil imports to decrease to around 4.5 million barrels daily after having imported more than 12 million barrels daily in 2008.

The U.S. may reach its peak in oil production around the year 2020, and may be able to reach 11 million barrels of daily production. The jump in shale oil production has led to a healthy climate for oil production and the refinery industry in America, and since oil prices in the U.S. are lower than those in Europe and Asia, and crude oil exports are still banned, the oil refinery business enjoys a deep disparity between its prices and the price of Brent Crude. The current price gap between Brent Crude and West Texas Intermediate is almost $10 a barrel. Therefore, American refineries can buy American oil that’s not allowed to be exported and convert it to diesel and jet fuel, then export it to Europe and Asia for high international prices. By that, the American refinery industry gains from the difference between American oil prices and world oil prices. This has recently led to the U.S. making more from petroleum product exports than it spends on imports.

In 2007, the net trade for American petroleum products had reached an import of 2 million barrels daily. Now, net revenue is in the positive, as the U.S. exported 1.2 million barrels of petroleum products daily in 2013. The U.S. is expected to become the world’s leading exporter of petroleum products in the near future. There is no doubt that the hydrocarbon revolution has revived the oil and gas industry, including petrochemicals, in the United States. This will positively affect the U.S. economy by reducing oil and gas imports and increasing job opportunities for Americans. Additionally, international investments on American soil will contribute to the oil industry.

The U.S. is preparing to export its first shipment of liquefied natural gas from its soil out of Alaska in the coming year. The U.S. has become the greatest producer of natural gas as a result of advanced technology, as well as rock fragmentation to extract oil and gas. This revival is bound to have an effect on alternative biofuel production of food grains, or so-called biodiesel, such as with ethanol, which itself produced from corn, is mixed with gasoline. It does not make sense to convert such huge amounts of food grain to fuel if it is possible to produce diesel and gasoline from shale oil. It’s possible that the oil and shale gas boom in the U.S. may slow down work on other alternatives, like algae fuel, as well as reducing interest in solar energy at the same time. In other words, energy production will focus on shale because of it being more economically practical than alternatives.

The U.S. currently produces around 30 percent of its gross oil production from shale and nontraditional means and will gradually increase its production of shale oil. That is because the U.S. is vast, and shale oil is currently far more expensive than shale gas. Producers will thus focus on producing petroleum products instead of gas. So, while a million Btu of shale oil is sold in the U.S. for $15-$17, a million Btu of natural gas is sold at Henry Hub for around $4. Many drilling companies are then going to switch from searching for cheap shale gas to searching for and producing expensive shale oil. But the problem in producing from shale fields lies in that it runs out quickly, and new wells need to be drilled in short periods of time. So, for example, in order to maintain the current rate of production for shale oil wells in the U.S. — 3.5-3 million barrels daily — 6,000 wells would need to be dug yearly, while this amount is traditionally produced with far less effort. Therefore, a number of experts predict that although American shale production will reach its peak in 2017, it will not last long, and production will slow down after two years and recede to the same rate of production as 2012 —around 6 million barrels a day. This pattern resembles what happened during the first peak in 1970, when production reached 9.6 million barrels daily but then began to decrease quickly to around 8 million barrels in 1976, after six years. So, the first peak period didn’t even last a year.

The U.S. may reach its peak oil production in 2020, producing 11 million barrels daily, if the current push continues. But the most important question remains: Is this substantial growth toward a second peak the beginning of a new era that will last for decades? Or, is it merely an end-of-service party for the oil and gas industry in the United States?