Data in Oil & Gas Journal's annual Forecast & Review place into useful perspective the oil-supply boom under way in the US (p. 26). In particular, the data can help moderate three misconceptions to which American commentary has an understandable tendency to succumb.
According to one of those points of confusion, the US is on the verge of supplanting Saudi Arabia as the world's oil-producing powerhouse. Superficially, data seem to support the claim. This year, according to the Forecast & Review, the US will supply oil and related hydrocarbons at the rate of 13.4 million b/d. Saudi production of crude oil and lease condensate, if late-2013 trends extend through 2014, might average 10 million b/d or slightly more. This is the comparison often made. It's misleading.
Production muscle
The US supply projection includes 2.6 million b/d of NGL from gas plants, 1 million b/d of renewable fuels and oxygenates, and nearly 1.3 million b/d of processing gains. Production of crude oil and lease condensate—the real test of oil-producing muscle—will be less than the Saudi value, at 8.5 million b/d. Furthermore, Saudi Arabia, according to the US Energy Information Administration, produces about 1.8 million b/d of NGL and other liquids. In comparisons against total US oil supply, that estimate needs attention.
The fundamental measure, though, remains geologic performance: a country's ability to produce crude oil and lease condensate. By that metric, the US is taking huge strides. This year's forecast represents an increase of more than 1 million b/d from 2013, when output is estimated to have been up 1 million b/d from the prior year. Production increases will continue for at least a few more years if oil prices stay high enough to support costly horizontal drilling and massive hydraulic fracturing and if nothing of a political nature discourages drilling. Before starting its inevitable decline, US output might rival the Saudi capacity to produce crude: about 12 million b/d. But Aramco doesn't have to mass-produce hydraulically fractured horizontal holes to produce crude oil at that rate.
Confusion also is evident in occasional assertions that the US has or soon will become self-sufficient in oil supply, which would mean the country produced as much oil as it consumed. The data say otherwise. OGJ expects domestic demand for oil products to average 18.8 million b/d this year, about the same as last year. That's well above projections for production of crude and condensate and for total supply before imports and stock changes.
The error comes from a misreading of changes in US oil trade. With domestic supply increasing and consumption leveling, the US has become a net exporter of oil products—but not of total oil, a category that includes crude oil. OGJ predicts the US will export 1.37 million b/d more gasoline, distillate, and other products than it imports this year. But projected imports of 6.6 million b/d of crude will, although down from last year's rate, mean the US remains a net importer of oil overall.
Energy independence
Related to misconceptions about self-sufficiency is the hope that the US will become energy-independent. This won't happen. Recent surprises notwithstanding, the country probably won't produce enough to eliminate its need for foreign oil. Even if it did, its interests would remain tied to oil prices, which remain subject to international markets and events. And many US trading partners will remain net importers of oil. Developed countries cannot insulate themselves from these pressures, no matter how much oil they produce. They cannot be energy-independent by any reasonable meaning of the phrase.
The US certainly should welcome the improvement to its balance of trade that comes with the reduced need to buy oil abroad. It benefits the national economy. Even better economically is growth in the profitable production of oil from domestic resources. The consequent jobs, incomes, and tax receipts are what all Americans most need to understand about the US supply boom.