Expected increases in well-level productivity and higher crude oil prices have prompted the US Energy Information Administration (EIA) to increase its 2023 and 2024 US crude oil production forecasts to 12.8 million b/d and 13.1 million b/d, respectively. Both would be annual records.
The breakneck pace of crude production has supported natural gas production as well, despite weaker prices in that market. Continued growth in associated gas production, particularly in the Permian basin, will offset declines in natural gas directed drilling elsewhere, according to EIA, which expects dry gas production to average 104 bcfd through end-2024, compared with 103 bcfd in second-quarter 2023.
Supporters of the Biden administration point to figures like these as evidence that the domestic oil and gas industry continues to thrive under its leadership. Detractors, however, note steadily falling rig counts and higher retail prices for refined products as signs of trouble, wondering aloud about where the barrels to replace those now being extracted will come from.
Only time will answer these questions. But it’s worth noting that industry efficiency has gotten us to where we are—producing more than ever with less equipment—and that that efficiency itself is a function of conscious industry reaction to the market.
In even the recent past, the standard response to sustained high prices in a supply-constrained environment would have been to apply the resulting profits to putting additional rigs in the field, thereby pulling more oil out of the ground and stacking more cash in the coffers. “Drill baby, drill!” and “energy independence” would have been the rallying cries as new boomtowns sprang up seemingly overnight.
Forward to the past
As the campaigns for 2024’s US elections heat up, some have already dusted off these slogans as ways to support what they would describe as an industry struggling under the yoke of government oppression.
“Expanding our leadership in natural gas production and exporting this crucial global commodity is key to regaining energy independence and national security,” said Presidential candidate and former VP Mike Pence as part of his ‘Energy Expansion’ plan. He had addressed oil earlier in his plan, saying that “our competitors are controlling the spigot and setting prices because we refuse to lead the world in oil production,” evidently forgetting that the US already produces more petroleum and other liquids than any other country.
It’s possible that the US could produce still more oil, extending its global leadership in that regard and setting new records along the way. Less likely is the prospect of companies that produce oil here exporting less of it. They have freely chosen their current courses of action in both instances, as is their right as participants in what remains one of the most free-market economies in the world.
US crude oil production of 12.7 million b/d in July rose by 245,000 b/d from June to reach its highest recorded level for the month, 11.3% above the 5-year average. At the same time, US petroleum exports of 10.1 million b/d—4 million b/d of crude oil and 6.1 million b/d of refined products—fell by 227,000 b/d. Both of these outcomes stemmed from industry choices made in reaction to market forces.
Natural gas has followed a similar course. According to data from CEDIGAZ (the international association for natural gas), the US exported more LNG than any other country in the first 6 months of 2023.
Politicians need to appeal to voters to both gain and retain office. So, their motivations are clear. The Biden administration is no friend of the industry. But claiming that business is somehow being strangled while production, exports, and profits are higher than ever is transparently disingenuous. To the degree
the industry plays into these claims, it risks losing credibility as a good-faith actor and should stop.