We increasingly hear of America’s endless addiction to foreign oil imports, but for the first time since 1995, the U.S. is producing more crude than it's importing.
Much of the credit goes to increased drilling in shale rock regions in North Dakota and Texas, along with the introduction of horizontal drilling and hydraulic fracturing (fracking), according to Reuters.
U.S. production will make a surge from 6 million barrels per day in 2011 to a projected 8 million bpd by the end of 2014. Production levels are currently at 7 million bpd.
According to the U.S. Energy Information Administration (EIA), the U.S. was able to decrease oil imports from 10 million bpd to 8 million bpd due to slower demand and higher production volume.
The U.S. is headed in the right direction, but MNI News made mention of the coming 2013 hurricane season, which could have untold effects on the nation’s rising tide of crude production.
The Global Post reports that Anadarko Petroleum (NYSE: APC) discovered a vast resource of oil reserves in the Gulf of Mexico in its underwater Shenandoah-2 oil well.
Though the company has yet to elaborate on the quantity of newly-attained oil, company reps are fully confident that the new find will contribute a great deal to U.S. oil production.
Hurricane season may affect not only Gulf Coast drilling but Texas and Oklahoma production numbers as well, since these two states are interconnected to the Gulf through refineries and various pipeline deals that are underway.
Hurricanes that strike the Gulf Coast could slow down production in 2013 and 2014, which could leave EIA’s oil forecast obsolete. However, MNI News has stated that increased production could meet the EIA’s projection sooner than expected.
Besides Mother Nature, the U.S. is also susceptible to the international market.
You may think the U.S. is finally easing some measure of its foreign oil addiction, but the government is still heavily reliant on Saudi exports, rendering gasoline and diesel an expensive commodity.
From the EIA:
“Regardless of how much the United States is able to reduce its reliance on imported liquid fuels, it will not be insulated from price shocks that affect the global oil market. And Saudi Arabia will likely continue in its unique role as the only holder of significant spare oil production capacity among world oil producers.”
Dependent as the U.S. may be on OPEC, higher drilling in shale regions is a factor in OPEC’s affected numbers. The U.S. predicts OPEC will make a cut of “600,000 barrels per day, signaling an increase in world surplus production capacity,” according to FuelFix.
The EIA maintains that OPEC oil production will lower from 30.9 bpd in 2012 to 30.3 million in 2013, a result of increased crude output around the world. Worldwide surplus capacity is not only to blame; the EIA also mentions internal problems among various OPEC nations.
The EIA also factored in primary OPEC nations like Venezuela, Iran, Angola, and Iraq undergoing degrees of national dysfunction – something that will play a role in decreasing OPEC production and causing some ripple effects in the world oil market.
Libya is a heavy exporter of oil to Europe and Venezuela has the largest oil deposits in South America. Their dysfunction will no doubt affect OPEC numbers in the next few years if these OPEC-member nations do not get matters under control.
The death of Hugo Chavez was factored in the projection, assuming “current policies related to the oil sector are continued,” according to the EIA. The report does note the potential for economic instability.
The EIA stated that Iran was not included in oil estimation because of heavy sanctions imposed by Western nations. The report was also forced to place little confidence in Libya. Since the downfall of Moamar Khadafi, Libya has undergone a wide degree of political and social instability. An ever-present threat of danger, lack of leadership, and faltering infrastructure are things that have already affected oil production in Libya.
The same can be said of Iraq, with the inclusion of conflict between Iraqi officials and the Kurdistan Regional Government, which has affected oil activity in the north.
The report also mentioned Angola’s desperate need of technical and infrastructure upgrades, especially in the deepwater Greater Plutonio region.
However, there is a glimmer of hope since engineering company Technip won a five-year construct to provide structural additions to the Greater Plutonio, according to MarketWatch. And there will be more exploration projects underway in Angola, which will compensate for the lack maintenance oversight.
Though OPEC is comprised of many nations, Saudi Arabia is the head of the organization, and the group relies on the Kingdom remaining stable. Various OPEC nations are going through some problems, but the largest drop in OPEC production originates from Saudi Arabia because of lower demand, according to the EIA.
Some OPEC nations may have plenty of internal matters to sort through, but the root behind the drop in OPEC production is a yearning for energy independence among various nations. The U.S. is one of many nations struggling to get out from under the influence of Saudi oil, and growing worldwide output is an indication of the thirst for lower energy prices and less dependence of foreign imports.
Some OPEC nations are going through states of dysfunction, but non-OPEC nations are going through some instability of their own. An article posted by CNBC discussed worldwide economic instability as playing a role in lower OPEC demand.
Uncertainty in the American economy could trigger a slowdown in OPEC production – not to mention a lagging job market, which prevents American consumers from spending more to fuel their vehicles.
And the euro crisis is spreading among EU nations – combined with retracting economic growth in Europe. Increased output of national crude and weak economies play a role in a decreased need for OPEC exports, but other components, such as Western investment in renewable energy, are also things that could further drive down OPEC demand.
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