Soaring U.S. Crude Oil Production and LNG Exports Forcing Oil Prices Down
BE2C2 Report (Nov 3, 2018): U.S. crude oil production has increased significantly during the past ten years, driven mainly by production from tight oil formations using horizontal drilling and hydraulic fracturing,” said U.S. Energy Information Administration (EIA) in its new report.
Production hit 11.3 million barrels of oil per day in August making US now the world’s top producer, forcing prices down.
“Efficiencies in pipeline utilization and increased trucking and rail transport” allowed production growth to continue at a higher-than-expected rate, the agency said in a a report on Thursday.
Crude oil production in the U.S. had reached a previous peak in 1970, with 9.6 million barrels per day, before it started a decline to the point that crude oil output nearly halved by 2008, when increased consumption led to the need for rising imports.
But hydraulic fracturing technology to extract oil from tight formations in the US started to reverse the decline at that time and helped to reduce geopolitical risks of importing oil.
The U.S. has now overcome production in Saudi Arabia and Russia–its crude oil production exceeded that of Saudi Arabia in February this year, for the first time in more than two decades.
According to recent reports, current Saudi Arabian production is being ramped up to 10.7 million barrels per day, from 9.9 million barrels per day. Russia’s current oil production is estimated at about 11 million barrels per day.
Separately, there’s a rising production and exports of LNG from the U.S. amid increasing demand particularly from China.
The U.S. exports of LNG through the first half of 2018 rose 58 percent compared with the same period in 2017, according to data from the U.S. Energy Information Administration.
Based on EIA data through April 2018, China’s imports of U.S. LNG stood third behind only South Korea and Mexico.
Out of 40 countries which imported LNG last year, the US exported LNG to 25 different countries, including 2 shiploads to Pakistan this summer, and “that has impacted countries like Qatar”, said Syed Rashid Husain, Canada-based oil & gas analyst.
For the US, while China is a major player in the LNG market, it’s not the only customer. Europe is clearly a market for LNG imports from US as countries look to diversify their gas supply from Russia post-Crimean crisis sanctions.
President Donald Trump announced last year his administration’s goal is “energy dominance”. The Obama administration also promoted U.S. gas as a counterweight to Russian energy.
By this administration’s reckoning, ramping up production and exports—particularly of oil, gas, and coal—can make the United States an energy superpower.
According to reports, US aims to triple its LNG export by 2019. Between oil, gas, and renewables, North America as a bloc has already become energy independent, said Mr. Husain.
Separately, the LNG carrier fleet is expanding fast, according to a report.
As of late April, 22 LNG vessels were delivered since the start of 2018 with an expected 43 other vessels to be delivered during the rest of the year. This would take total capacity to “by far the largest yearly number ever,” according to a report from LNG World News.
LNG is natural gas, or methane, mixed with some ethane that is processed in a cryogenic facility to reduce volume 600 times to make it easier for shipping. Once delivered, the LNG must once again be re-converted to natural gas so that it can be used to produce electricity or for other uses.