BP Statistical Review: U.S. Has Reinforced Position as World’s Largest Oil and Gas Producer
It wasn’t long ago that Americans were inundated by news stories pushing the “Peak Oil” myth. With the United States producing just 5 million barrels of oil a day in 2008, reports of “the end of oil” spurred the belief that we had reached our maximum oil output and foreign oil producers would eventually hold most of the power. Then fracking changed everything.
In fact, as the latest iteration of BP’s annual Statistical Review of World Energy report shows, the United States is currently experiencing the opposite of “Peak Oil” – an abundance of oil and natural gas – all thanks to U.S. shale development through hydraulic fracturing (fracking). Because of fracking, the U.S. was able to successfully maintain its position as the top oil and gas producer in the world in 2015.
The report, now celebrating its 65th year of publication, analyzed the long-term supply and demand trends in the world energy market. On the demand side, oil consumption worldwide grew significantly in 2015, as the report states:
“Global consumption grew by 1.9 million barrels per day (b/d), or 1.9% – nearly double the recent historical average (+1%) and significantly stronger than the increase of 1.1 million b/d seen in 2014.” (p. 3)
The United States was one of the main drivers of this oil consumption increase among Organization for Economic Co-operation and Development (OECD) countries, with U.S. consumption growth averaging about 300,000 b/d – “well above” historical averages.
On the supply side of the equation, U.S. production remained strong in 2015. The report mentions that in 2014, supply from countries outside of the Organization of Petroleum Exporting Countries (OPEC) – i.e. mostly the United States – grew substantially. In the face of this increased production from the U.S. shale revolution, the Saudi Arabia led cartel sought to regain control by flooding the global market, thus lowering prices, in an attempt to force U.S. shale producers out of the market. OPEC maintained this tactic of oversupply through 2015, even raising output to record levels. As the report presentation states:
“But that wasn’t all that happened: OPEC supply increased substantially, by 1.6 Mb/d to a new record of 38.2 Mb/d.” (p. 8)
The report continues:
“Rather than a general increase in supply it is perhaps more accurate to describe this as an increase in production of two OPEC members: Iraq (0.7 Mb/d) and Saudi Arabia (0.5 Mb/d), which together accounted for the majority of the increase.” (p. 8)
But, as we’ve mentioned before, OPEC’s plan has backfired. Innovation in U.S. shale production has made oil and natural gas development more efficient, resulting in greater production even with a decline in rig count. According to the report presentation:
“The strong gains in rig productivity meant that the slowing in output growth was less pronounced, with total US production still increasing by 1.0 Mb/d in 2015. In doing so, the US reinforced its position as the world’s largest oil producer.” (p. 7; emphasis added)
While this global oversupply of oil has impacted U.S. producers, the report notes there is a silver lining: refining. As the report points out:
“After barely growing in 2014, global trade of crude oil and refined products expanded by 3 million b/d (+5.2%) last year, the largest increase since 1993.” (p. 4)
The report continues:
“Growth in refined product exports was again led by the US (+470,000 b/d); the country’s net oil imports fell to 4.8 million b/d, the lowest since 1985.” (p. 4)
But, it wasn’t just oil production where the United States maintained its position as a global leader – it also led in natural gas production. While the report attributed last year’s decrease in demand for natural gas to a mild winter and lower industrial production, domestic production of natural gas stayed strong because of fracking. According to the report:
“One the supply side, the US remained the global powerhouse, with output growing by over 5% (39 [Billion cubic meters] Bcm) in 2015, accounting for more than half of the increase in world production. All of this increase was driven by US shale gas; conventional production fell.” (p. 11; emphasis added)
With fracking, natural gas now is cheaper and more abundant than ever, meaning more countries are turning to it over other sources of energy. While increased consumption of natural gas is good news for producers, it also benefits the environment, as natural gas is cleaner burning and therefore helps lower global carbon emissions. As the report mentions:
“In particular, the slower growth of energy demand together with the shift in the fuel mix away from coal towards lower carbon fuels meant carbon emissions from energy use were essentially flat last year (0.1%) – the slowest growth in nearly a quarter of a century (other than the immediate aftermath of the financial crisis).” (p. 16; emphasis added)
Overall, while low commodity prices have taken their toll on oil and natural gas producers, this report shows that not only is U.S. energy production strong enough to stand up to OPEC thanks to fracking, it will continue to thrive, bettering both the economy and the environment.