United States has joined the elite club of major oil exporting nations with nearly $22 billion worth of oil exports. The US Congress lifted a 40-year-old ban on the export of crude oil following the 1973 OPEC oil embargo. The ban restricted crude oil exports from the US to all countries besides Canada. The last time the US exported more oil than it imported was 1953.
The International Energy Agency estimates that American oil production between 2015 and 2025 would grow at a rate unparalleled by any country in history, with far-reaching consequences for the US and the world.
Technological advancements in drilling and fracking (hydraulic fracturing) helped US to extract huge reserves of gas and oil trapped in shale rocks. Main contributor to shale oil production is from the Bakken Shale Formation in North Dakota and the Eagle Ford Shale in Texas. The oil that is being produced from these shale formations is sometimes incorrectly referred to as ‘shale oil.’
The oil in the Bakken and Eagle Ford formations actually exists as oil, but the shale does not allow the oil to flow very well. This oil is called ‘tight oil’ and advances in hydraulic fracking technology have allowed some of this oil to be economically extracted.
‘Tight oil’ refers to hydrocarbons that are trapped in formations that are not very porous. This oil and gas cannot flow out into the pipe as easily as with traditional wells. This oil is extracted by drilling horizontally across the deposit, and then fracking to open up the rock and allow the oil to flow.
The price of oil is political and is set by the big players, particularly by the Organization of Petroleum Exporting Countries (OPEC), led by Saudi Arabia. New fracking technology has resulted in flooding the oil market. Oil prices had been above $100 per barrel up to 2014 and is now about $50 per barrel, all because of US shale oil. The shale revolution has transformed oil tycoons into billionaires and the US into the world’s largest petroleum producer, surpassing Russia and Saudi Arabia.
As the oil market got flooded, Saudi Arabia initiated an economic oil war against the US by refusing to cut production in November of 2014 – an attempt to drive US shale oil producers bankrupt. The increased OPEC oil production drove oil prices down even more, eventually dropping to about $30/bbl in 2016, a price at which shale producers can’t break-even.
The oil wells used to flare out natural gas and was burned off as an unwanted by-product. Now the gas is cooled to minus 162 degrees Celsius, to be condensed into a liquid – Liquefied Natural Gas (LNG) -to be used as a clean alternative to coal. US is now a top producer of LNG, selling shiploads of the commodity to countries such as China.
Even though LNG is not a very ‘clean fuel’, US under President Trump has been exporting LNG from 2017. US is expected to overtake Qatar and become the world’s biggest LNG exporter by the mid-2020s.
US may claim today that it is energy independent, but will still be exposed to global energy prices and still be affected by the geopolitics of the Middle East. Though US sells more petroleum than it buys, American refiners continue to import more than 7 million barrels a day of crude from all over the globe to feed its refineries, which consume more than 17 million barrels each day. Thus the US has become the world’s top fuel supplier.
Why this sudden multi-fold increase in oil production? Is it the re-emergence of US under President Trump? Is it an attempt to control the world through the oil market? These questions will find answers in days to come.
It could also be that US is exploiting all its oil reserves to be sold in the world oil market as some new engine technology is in the offing with minimum dependence on fossil fuels. You may soon find such a technology emerging in the market and what it could be is anyone’s guess.
Let us wait and watch.