US Oil Production Rise in 2009 No Game-Changer
Oil production rose domestically for the first time since 1990, thanks to previously untapped reserves like that in the Bakken formation (pictured). However, this uptick means little for both prices and energy trends. (image: cbr.ca)
American oil production reached its peak in 1971, as was predicted by the Hubbert model applied to US oil fields. Since then, production has dropped by nearly 50 percent. Yet 2009 was a record-breaking year for US production, with levels increasing for the first time since 1991, according to the U.S. Energy Information Administration and reported by the AP.
However, missing in the above comparison is the fact that production dropped to its lowest point in 25 years in 1990, rendering the 1991 increase less significant in terms of overall production trends. In 1990, average domestic production of oil was 7.35 mbd, and in 2009, it was 5.32 mbd. 2009’s improvement over 2008’s 4.95 mbd is worth noting, but not a game-changer for the US energy outlook. The level is still 2 million barrels per day below the 1990 average.
As the AP article explains, the spike in 2009 domestic production was due to oil discoveries and the fruit of drilling projects that were financed during the period of high oil prices that ran between 2004 and autumn 2008. Deepwater reserves in the Gulf of Mexico and the Bakken Shale deposit that spans Montana and North Dakota were the biggest new sources.
“As the price of oil went up, you were able to access resources that were more difficult and expensive to get to,” said Rayola Dougher, Senior Economic Adviser for the American Petroleum Institute.
Dougher is referring to the steep costs of developing deepwater reserves and oil shale. The US Department of the Interior estimates that the US contains over a trillion barrels of oil in the form of oil shale, and 12-19 billions of barrels of oil in the form of tar sands. Both of these forms fall under the category of “unconventional oil,” because they require extraction techniques outside of traditional oil wells, and/or refinement techniques outside of those used for lighter grades of oil. As we’ve previously discussed, the methods of producing unconventional oil are economically feasible only when prices are very high.
But even under high-price conditions that could stimulate increased domestic production (some analysts are predicting higher oil prices in 2010 and onwards), it’s unlikely that Americans would experience relief from either high consumer prices or energy dependence.
In a period of very high oil prices, we would likely see more of these projects or efforts to make those federal lands, much of which are situated inside pristine national parks, open to drilling. However, setting aside the uncalculated costs to America’s bastions of untouched wildlife, it’s unlikely that these projects would have any impact on the price of oil, which is a globally traded commodity influenced by worldwide supply fluctuations that dwarf any US contribution. In terms of lessening our dependence on foreign oil, increased oil production domestically, even on the order of 1 mbd, would only offset the export losses that we are already experiencing from major suppliers Mexico and Venezuela. As analyst Chris Nelder wrote in February, the combined export loss from these two countries, which together comprise two of our three largest sources of oil, was 0.89 mbd from 2005 through 2008. Roger Blanchard, oil analyst and author of “The Future of Global Oil Production”, finds it “likely” that Mexican oil exports will reach zero within the next ten years.
The optimistic-sounding AP headline “Govt. says US oil production increased in 2009” implies a needed rejuvenation of our nation’s future energy supplies, but in reality only reinforces the unpredictability of our future.
