US crude oil production is poised for its biggest surge in almost 40 years

Dec. 3, 2009
US crude oil production for 2009 is on target to have its biggest one-year jump since 1970, according to a Platts analysis of industry data

US crude oil production for 2009 is on target to have its biggest one-year jump since 1970, according to a Platts analysis of industry data.

With US oil production averaging 5.268 million barrels per day (b/d) through October, the gain in output will be the most since the nation produced 9.637 million b/d in 1970, which turned out to be the peak year of US crude output, according to Platts’ analysis of data published by the US Energy Information Administration (EIA). If that 5.268 million b/d figure holds through December, this year would show a 6.4% boost from the 4.95 million b/d average of 2008 and rank as the best oil production year since 2004, when output averaged 5.419 million b/d.

For comparison, in the 40 years since US oil production peaked, annual output has jumped only eight times. Seven of those increases were minimal; only in 1978 was there a significant jump, an increase of 5.6% to 8.7 million b/d.

Hurricane curtailments of 2008 distorted the production numbers for comparison with that year, given that 183,000 b/d of Gulf of Mexico output was still offline at the end of that year. However, 2009 is still expected to post increases of 3% and 4% from the relatively storm-free years of 2006 and 2007, respectively.

Projections from the US Minerals Management Service (MMS) indicate the primary driver for this year’s US oil production resurgence is just getting started. That driver is the Gulf of Mexico, where operators have begun launching a group of new fields, fulfilling what has been a decade-long focus on unlocking deepwater exploration there.

Platts concluded that with the jump in the Gulf of Mexico, combined with the emergence of two other new oil-production trends, it appears the United States has a chance of at least maintaining oil output in the range of five million to six million b/d for some years to come. “We see it above five million barrels per day for the next 10 years or so,” Platts quoted Peter Jackson, senior director for IHS CERA, as saying. “There is still a tremendous amount of exploration potential in the United States, and that plateau could be sustained.”

The Gulf posted its biggest oil production year in 2002 with 1.556 million b/d, but only 61% of that total came from deepwater. In contrast, this year the MMS projects oil output of 1.213 million b/d with 76% from deepwater as the Gulf ramps toward an expected new oil production record of 1.635 million b/d by 2011.

Besides growth in the Gulf, those other trends involve further development of the Bakken Shale oil play in North Dakota and success by a group of operators now training their onshore exploration sights toward new oil targets at the expense of natural gas.

Development of the Bakken into a robust, new oil province is well under way, according to data from EIA. Bakken oil output has already elevated North Dakota into fifth place among US states for oil production with average daily output of 202,000 b/d at the end of 2008. But that number already appears to be old, even though is was 50% more than 2007 figures. For example, in June 2009, production in North Dakota had climbed to 215,000 b/d.

As for companies shifting their strategies, that group includes large Houston independent and Bakken pioneer EOG Resources, which has set a goal of shifting from a 70% gas production share to a 50/50 oil and gas mix by 2011 with a review of additional potential North American shale oil targets.

This rise in output has helped the United States reduce its net imports—defined as imports less exports, both crude and petroleum products—substantially. While there are many factors that go into the United States’ net import figure, the decline has been striking, according to EIA data.

For the final three months of 2008, net imports were never less than 10.5 million b/d, and were as high as 12.68 million b/d. This year, the EIA is reporting that net imports in the first week of October were 10.1 million b/d, have not been higher since, and have been as low as 8.84 million b/d.

While the drop in US consumption can be seen as accounting for much of that decline, the nation also has put more than 140 million barrels of crude oil and products into inventory since the beginning of October 2008, something made possible in part by the rise in crude oil output.

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