Texas Oil Boom More Sustainable than Prior Cycles
People often ask how long we should expect the current boom in shale oil and natural gas that is happening in Texas and throughout much of the United States to last. The correct answer today will be some variation on the theme: “a very long time.” One presenter at this week’s Eagle Ford Consortium Conference in San Antonio, Greg Leveille of ConocoPhillips, told his audience that the 25 county region that makes up the Eagle Ford Shale play should expect to see “decades and decades” of production.
Local citizens in the Eagle Ford region, the Permian Basin of West Texas, and other significant shale plays around the country naturally worry about when the next “bust” will come, which is not an unreasonable concern to have. After all, conventional oil and gas booms in previous decades have almost always eventually wound down into a bust at some level. But there are many reasons to believe that the shale boom will be different, and the Eagle Ford play provides a very good example why. As Leodoro Martinez, who chairs the Eagle Ford Consortium, told a reporter, “Everybody talks about boom and bust. We want to talk about the boom without having a bust.”
The differences between today’s situation and that of prior booms are many. Start with the fact that previous booms, like the oil boom of the early 1980s, came about due to high oil prices driven by restrictions in supply. The restrictions in the 1980s were artificially driven by OPEC, and prior booms came about simply due to a failure by the global industry to identify adequate new resources. In every case, you had rising demand and limited supplies to meet it.
Today’s boom in the United States is different in that we now have rapidly rising domestic supplies meeting rising demand (although domestic demand for some fuels, like gasoline, has actually leveled out in recent years). Where in the past the United States was forced to rely more and more heavily on imports from OPEC countries, today’s shale boom is enabling our country to actually lower its imports on a daily basis, with our imports having been cut almost in half since 2007. In the meantime, rapidly rising demand in China, Japan, India and the rest of the Pacific Rim is filling the void in U.S. imports, consuming all the oil the OPEC countries and Russia can produce. This all ensures the price of oil will remain healthy enough for the U.S. drilling boom to continue, even as the United States continues its path toward energy security, rather than away from it.
And it is continuing in a huge way in Texas. Mr. Leveille projected that by the end of 2014, the state of Texas will most likely produce more oil on a daily basis than all the OPEC countries except for Saudi Arabia. Today, Texas would rank ninth in the world in daily oil production if it were a separate country. If Mr. Leveille’s projections hold, Texas would finish this year having moved up to number five on that list, behind only Russia, Saudia Arabia, the remainder of the United States, and China. The 3.4 million barrels of oil per day he estimates Texas’s oil production to reach by year’s end would represent a more than 150 percent increase over the state’s 2008 levels.
Of course, any boom in any extractive industry comes with a set of local impacts, and traffic congestion has been one of the most significant impacts in the Eagle Ford region the last few years. However, Mr. Leveille told his audience that ConocoPhillips is doing its share to address that issue, having made a 40 percent reduction in the amount of oil it transports via truck in a single year. The company has also virtually eliminated the need to truck fresh water to hydraulic fracturing sites using a variety of alternative methods.
Mr. Leveille summed up the magnitude of the Eagle Ford Shale by saying, “What you’re seeing unfold in the Eagle Ford is probably the greatest energy success story we will see in the 21st century.” Indeed, this oil and natural gas resource play has transformed a sleepy, rural, relatively poor region of South Texas into what has now been one of a handful of most significant economic development areas on Earth for the last half decade.
With a regional Eagle Ford rig count that has now held stable for three solid years, a steadily growing level of activity in several different oil plays in the vast Permian Basin, and a global supply and demand picture that shows no signs of shifting significantly anytime soon, we have every reason to expect the oil boom in Texas and the rest of the United States to continue for quite some time.
That’s good news for all of us, although I’d be kidding myself if I didn’t admit that it’s especially good news for Texas.