The USA, largest consumer of oil and perhaps about fourth in production has entered an oil boom.  It’s because of production technology.  U.S. demand has slipped down as well.  The U.S. is awash in oil.  It’s the rest of the world that’s driving demand.

The past 25 years has seen world oil sales increase 50% since 1986.  Freeing the communist block has consequences like consumers who can afford an energy-supported lifestyle.  The forecast for this year is oil will be used at a daily rate of 89 million barrels a day.  The increases aren’t likely to drop worldwide anytime soon.

If you believe in bureaucrats, the U.S. Energy Information Administration (EIA) has world oil consumption forecast up to between 108 million to 115 million barrels per day in the next 25 years. The forecast range accounts for a low-side oil price of $50, and a high-side price of $200. At the low range the consumption is expected to grow by 21% from today’s levels.

With the big, easy and low cost oil deposits pretty much found for now many (peak oil, oil doomers and others) wonder where all that oil is going to come from.

Oil production is a multiyear investment from discovery to gas in the tank.  The US consumers chew through more than 22% of world production – a third more than the European Union, and about twice China’s rate.  Both of these major markets have larger populations than the U.S.

Before OPEC and embargos, a freed Russia and the other major oil production matters the U.S. back in 1970 only imported 1.3 million barrels a day and produced 9.6 million.  It took until 1994 for oil imports to surpass the U.S. production.  By 2005 imports were double the U.S. production.

The ensuing 6 years have shaved off some consumption and increased U.S. production.  Imports are off now 1.3 million barrels per day from the 2005 peak.  Consumption in the U.S. is sensitive to the economy and prices.

But the big news is in U.S. production.  The 2008 low of 4.95 million barrels per day was the lowest back to 1946.  One might point out in 1946 the U.S. was producing about half of the world’s oil, a stark contrast from 2008 volume in which it only produced 6% of the total global supply.

Faced with smaller, harder to find, more expensive to produce oil fields, foreign oil was cheaper to buy. The US’s production decline was deemed and declared as irreversible by pundits and politicians, while consumers had to allocate ever larges shares of budgets for an oil dependence needing an ever-larger fill up from foreign sources.

U.S. production growth in 2009 killed the assertion of an irreversible downward production trend. And 2009’s 8.3% increase in production to 5.4m bpd not only broke a streak of 17 consecutive years of declines; it marked a new trend that is showing the reversal to be the real thing.  Based on annualized production figures from the first half of 2011, the U.S. is on pace for its third consecutive year of production growth. Over this time domestic production will have grown by 12%, adding nearly 600,000 barrels per day.

It’s expected that this trend will continue for many years to come. The EIA sees U.S. production exceeding 6 million barrels per day by 2018, with the possibility of exceeding 7 million per day by about 2025.  Many experts believe these volume estimates to be conservative.

With those very low prices in the 1980s and 1990s keeping search and development near a standstill, the past few years have reignited the search and development side of the oil business.  But most importantly more revenue has opened technology’s door.

Advances in horizontal-drilling and hydraulic-fracturing methods have opened up vast resources within large shale-oil formations that underlie the US.

Horizontal drilling is not new. In fact, it has been a work-in-progress in the oil industry for over 50 years. What’s really revolutionized this method of recent is vast improvements in drilling equipment and radical innovations in down-hole monitoring instrumentation. Drillers can now guide their bits at the precise angles and degrees to access longer portions of deep thin and tight reservoirs.

Precision horizontal drilling is essential when trying to recover oil from massive shale formations like the prolific Bakken field that underlies the Williston Basin in North Dakota and Montana. The Bakken’s thin band of continuous crude filled rock stretches across 25,000 square miles, with the main pay zone about two miles below the surface. However the zone only has a maximum thickness of about 150 feet, while many spots are squeezed to less than 50 feet.  Historically, operators had little success drilling vertical wells straight down through the pay zone.

With horizontal drilling the reservoir is essentially flipped on its side, thus greatly extending the hole through the pay zone. Instead of pumping oil from just a small vertical hole of a large thin horizontal reservoir, the Bakken’s operators drop their wellbores into this rich formation and extend them laterally off to the side. Many of these wells have holes drilled two miles in length laterally through the pay zone.

Shale is a tight oil-bearing rock requiring another major step to harvest an economic flow of oil production. Getting oil out of a tight shale rock is an active process, the oil must be provided with pathways to flow to the well.  To do so an operator must stimulate the host rock using hydraulic fracturing (fracking).

Fracking is not new either; it too has been around for over 50 years and has been a work-in-progress in the oil industry.  In recent years have new innovations in fracking allowed formations like the Bakken and the new and exciting deeper Three Forks formation to see wildly positive economics. Advances in multistage fracking have allowed operators to maximize drainage across the entire lateral, revolutionizing the way petroleum engineers are approaching shale-oil development.

Oil operators are still in the early stages of uncovering the Williston Basin’s enormous potential and are making amazing progress as seen in the Bakken’s robust production growth. Production has grown from about nothing in the early 2000s to over 400,000 barrels per day in 2011.  Many project Bakken production to exceed 1 million barrels per day soon. The two technologies form a significant and material output that is one of the major reasons for the US’s new upward trend.

Its technology applied with oil prices high enough to make them affordable.  Maybe the price of oil products like gasoline doesn’t seem so affordable, but the alternative is to bid for more imported oil, or cut use dramatically.


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