Shale Revolution Making U.S. the World’s No. 1 Oil Producer

With the recent news that the United States in 2014 became the world’s largest oil producer — overtaking Saudi Arabia — it marked the first time a country has raised production by at least 1 million barrels a day for three consecutive years. The news also:

  • Spoke loudly to the impact that shale production has had on U.S. oil production and the related markets for drilling equipment and oil drilling supplies
  • Marked an apparent key turning point in the global oil and gas markets

According to BP’s recent Statistical Review of World Energy 2015, the U.S. produced 15.9 percent more oil in 2014 — 11.6 million barrels per day (BPD) — to top Saudi Arabia’s daily average production of 11.5 million barrels. In addition, the U.S. output of natural gas and oil combined moved it past Russia, the previous global leader, in combined production.

BP chief economist Spencer Dale credited the “shale revolution” for a surge in American oil production.

“We are truly witnessing a changing of the guard of global energy suppliers,” Dale said in a webcast. “The implications of the shale revolution for the U.S. are profound.”

Bloomberg news noted that shale drillers “from Exxon Mobil Corp. to Chesapeake Energy Corp.” spent about $120 billion in the United States in 2014, more than twice the amount spent five years earlier. The surge in output — with an accompanying slowdown in global demand — have pushed crude oil prices down about 40 percent in the past year, the news outlet noted.

That trend and others behind the 2014 production numbers “may well come to be viewed as symptomatic of a broader shifting in some of the tectonic plates that make up the energy landscape, with significant developments in both the supply of energy and its demand,” Bob Dudley, BP’s group chief executive, wrote in the report’s introduction.

The “broader shifting” that Dudley described is, meanwhile, having a positive ripple effect throughout the oil and gas industry, said Andy Eldridge, chief financial officer of Summit Casing. Based in Fort Worth, Texas, Summit manufactures its own lines of centralizers and float equipment to service oil and gas production throughout the U.S. and internationally.

“We’ve seen the impact of the changes in global energy production, in terms of business strategies for us and our customers, and in terms of the operational needs of our customers,” Eldridge said.

The emergence of the U.S. as the top driller confirms a trend that has helped the world’s largest economy reduce imports, caused a slump in global energy prices, and shifted the country’s foreign policy priorities.

“Those developments had profound implications for prices, for the fuel mix, and for carbon emissions,” Dudley said.

For example, Dudley said the lower prices will force some producers to rein in what he called “frothy activity” at some U.S. shale fields. Most output, however, can work even at current prices, he said. BP noted that the number of rigs currently drilling in shale fields are down by half from an October 2014 peak, and the number may stabilize by the end of the summer.

Which raises obvious questions about where all of that oil and gas is being used. What are the trends for consumption, and how are they affecting production?

The BP review noted that global primary-energy consumption slowed markedly in 2014, with growth of just 0.9 percent. It was a lower rate than at any time since the late 1990s, other than in the immediate aftermath of last decade’s financial crisis. More specifically, as Bloomberg news reported:

  • India’s energy consumption rose a whopping 7.1 percent, the fastest among major economies and second only to Algeria’s 8.4 percent expansion. At the same time, India’s oil production dropped 1.3 percent. BP noted that while India is heavily dependent on imports to meet its oil needs, it is self-sufficient in refining capacity.
  • Chinese consumption slowed to its lowest growth rate since 1998, as its economy continues to rebalance away from energy-intensive sectors. China, however, remained the world’s largest growth market for energy.

These shifts in the market are causing the industry to be confronted with the challenges of today while also focusing and investing on the demands of the future.