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The United States Continues to Lead in Oil and Gas Production

Interesting to realize that United States has overtaken Saudi Arabia and Russia to become the world’s largest oil and gas producer and continues to lead in production. On April 7, 2016, the U.S. Energy Information Administration released a report showing the United States remained the world’s largest producer in 2014 despite the decline in oil prices that occurred during the second half of 2014. In that year, the United States produced almost double the amount of oil and gas that was produced by Saudi Arabia. Saudi Arabia produces mostly oil and a small amount of gas while the production in the United States and Russia is balanced, with about half of the production coming from gas, and the other half from oil.

Why The Increase In The US?

The report credits the increase in production of both oil and gas directly to the United States’ ability to exploit tight oil and shale gas formations. Last year the United States produced over 3.1 billion barrels of crude oil, an 18% increase from the 2.7 billion barrels produced in 2013. The increase in hydrocarbon production over the last several years is credited to the increase in horizontal drilling and hydraulic fracturing which allows production from unconventional reserves which were previously uneconomical to produce.

The Marcellus Shale, located in the northeast of the United States, produces about 16 billion cubic feet of gas per day. The Eagle Ford, located in Texas, produces about 7.5 billion cubic feet per day. For comparison, consider that Iran, which holds the world’s fourth largest proven crude oil reserves and the world’s second largest gas reserves, produces about 16 billion cubic feet of gas per day.

As a result of the US exporting liquefied natural gas to Europe, reports indicate that the petroleum trade balance will break even in 2018, with the U.S. exporting gas and importing an equivalent amount of oil. By 2019 it is expected that the U.S. will have a trade surplus due to net exports of both oil and gas.

A Glut of Oil Drops Prices

The increase in U.S. production was a major contributor to the most recent drop in oil prices. While production increased, demand growth was slowed, leading to an oil glut. The number of active oil rigs drilling new wells has also fallen in the past year and is expected to continue to fall even as production increases from existing wells. Due to advances in drilling technology, production will continue to increase due to the large number of wells already drilled in the last few years and the ability of energy companies to more efficiently extract reserves. More oil and gas is being produced from fewer wells.

The increase in production in the U.S. is already impacting the global market. Petroleum produced in West Africa that was previously imported by the U.S. is now being sent to the Asian and European markets. The ability of the United States to export large amounts of oil and gas in the future will probably have a major impact on global economic markets. In addition, if China begins to import liquefied natural gas from the United States, there will undoubtedly be substantial foreign policy ramifications.

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