Saudi Arabia pushes policy to stifle U.S. domestic energy production
June 3, 2015
Saudi Arabia is apparently feeling the squeeze brought about by successful U.S. drilling operations. The largest and most influential member of the Organization of the Petroleum Exporting Countries (OPEC) is petitioning the oil cartel to keep production elevated in order to drive down prices, presumably to prevent an influx of U.S. oil—much of it derived from hydraulic fracturing (fracking) operations—from entering the market. The Saudis' request seems to highlight a basic economic tenet that few have acknowledged thus far: lower gasoline prices are a direct result of the increased supply produced by fracking and horizontal drilling in the United States.[1][2]
OPEC is expected to support Saudi Arabia's proposed strategy and maintain output levels when the group gathers at its semi-annual conference on June 5. According to World Oil, this maneuver would favor market share over prices in an attempt to expel high-cost U.S. producers, a group over which OPEC has no regulatory control. "Saudi Arabia, OPEC's swing producer, has made no secret of its desire to crush the U.S. shale industry via a price war in order to recapture market share," writes The Fiscal Times' Anthony Mirhaydari.[3][4]
Kathleen Sgamma, spokeswoman for the Western Energy Alliance, echoes Mirhaydari's claim. She too contends the strategy is designed to hurt the United States, saying, "OPEC is definitely trying to put the U.S. producer out of business." She believes this is a direct result of the United States' success in both increasing production and decreasing the amount of oil imported.[1]
"U.S. imports of oil went from greater than 60 percent down to lower than 40 percent. So we cut out a good 20 percent of all the oil that we used," said Ryan Sitton (R), one of three members on the Texas Railroad Commission, which regulates oil and gas production for the entire state. "We changed from net imports to now using that 20 percent here that we produce in the United States. And that brought a lot of stability to the markets."[5]
Oil production in the United States has undoubtedly upended the industry, previously dominated almost exclusively by traditionally oil-rich countries in the Middle East. According to the American Petroleum Institute (API), multiple states—including Texas, Pennsylvania and North Dakota—now rival major energy producing countries. “Thanks to innovations in hydraulic fracturing and horizontal drilling, states like Texas and Pennsylvania now outpace many OPEC countries in oil or natural gas production. Rising domestic production has helped to reshape global markets and revitalize job creation here in the United States," API Vice President for Regulatory and Economic Policy Kyle Isakower wrote in a recent press release.[6]
API's study goes on to explain that the United States' new place among the top global oil producers is due to the swift growth in shale production. Another byproduct of this "shale revolution" is an estimated $1,200 in savings per household for U.S. consumers.[6]
The increase in U.S. oil production has spiked dramatically in the past six to seven years. "From between 2008 and 2014 and the end of last year, the world went from [consuming] 85 million to 92 million barrels a day, so [it] added 7 million barrels a day of consumption. In that time, the U.S. added about 5 million barrels a day of production. We filled almost three-fourths of the incremental production between 2008 and 2014 [...] in the United States," said Sitton.[5]
Though fracking—the process of injecting fluid into the ground at a high pressure in order to fracture shale rocks to release the hydrocarbons inside—has been in use for decades, combining this technique with horizontal drilling is what truly engendered the enormous spike in United States production over the past seven years. "We’ve had hydraulic fracturing since the 1940s and directional drilling was really coming into its own in the 90s. But what we didn’t have the ability to do was do a really long horizontal or a lateral and have multiple fractionation zones across the entire length of that lateral," said Sitton. Using these techniques in tandem has allowed producers to incorporate as many as 20 fracture stages within one well, whereas, prior to the use of horizontal drilling, such a site would have yielded only one or two.[5]
The map above shows oil and natural gas well counts across the United States. According to the U.S. Department of Energy (DOE), there are more than 4 million oil and natural gas sites that have been drilled in the United States over the last 150 years. At least half of these wells have been treated using fracking. The DOE further estimates that more than 95 percent of all current oil and gas wells are being fracked. Fracking accounts for more than 43 percent of oil and 67 percent of natural gas production in the United States.[7]
As of March 22, 2015, the United States was producing 9,566,000 barrels of oil per day according to the U.S. Energy Information Administration (EIA). If the DOE's numbers are correct, then 4,113,380 barrels of oil per day were produced using fracking.[8] According to the EIA's estimates, in February 2015, the United States was producing 92.09 billion cubic feet of natural gas per day. Using the DOE's approximations, this means 61.7 billion cubic feet of natural gas was being extracted using fracking.[9]
By comparison, Saudi Arabia, which still reigns as the world's top oil producer, was producing 9,740,000 barrels of oil per day as of February 2015.[10] One of the top natural gas producers, Russia, only has natural gas production data going back to 2012. In that year the United States produced 24,058 billion cubic feet of natural gas, while Russia produced just 21,764 billion.[11]
"Do we have statistics that tell us that hydraulic fracturing led to a cheaper, more reliable energy source? Absolutely," said Sitton. "Eighty percent of the incremental gain in oil that we saw in the state of Texas and around the United States was produced using a combination of hydraulic fracturing and horizontal drilling." Citing the oil crisis of the 1970s, he continued, "History will tell us that if we hadn’t filled the gap in the United States with this incremental 5 million barrels, that all basically was produced using hydraulic fracturing and horizontal drilling, then the price of gasoline wouldn’t just be through the roof, we might be dealing with rationing."[5]
See also
Footnotes
- ↑ 1.0 1.1 Fox News, "Falling oil prices could hurt US producers, fracking industry," December 16, 2014
- ↑ The New York Times, "Gas, Still Not as Cheap as It Used to Be," January 27, 2015
- ↑ World Oil, "OPEC seen backing Saudi Arabia’s plan to keep supplies elevated," May 27, 2015
- ↑ Yahoo Finance, "Why the Saudis and OPEC Want Cheaper Oil," June 3, 2015
- ↑ 5.0 5.1 5.2 5.3 Ballotpedia Senior Writer Brittany Clingen interview with Ryan Sitton, May 29, 2015
- ↑ 6.0 6.1 API, "States compete among top energy producing nations," May 28, 2015
- ↑ U.S. Department of Energy, "Natural Gas From Shale: Questions and Answers," accessed June 25, 2014
- ↑ U.S. Energy Information Administration, "Weekly U.S. Field Production of Crude Oil," accessed May 28, 2015
- ↑ U.S. Energy Information Administration, "EIA Best Estimate of Gross Withdrawals," accessed May 28, 2015
- ↑ Y Charts, "Saudi Arabia Crude Oil Production," accessed May 28, 2015
- ↑ U.S. Energy Information Administration, "Dry Natural Gas Production, 2012," accessed May 28, 2015
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