US Oil Production Up 14%;Breaks 1967 Record for Largest 1-Year Jump
Today's Wall Street Journal featured a front page story highlighting that US crude oil production grew by 14% last year. The finding came from an annual compilation of industry trend lines that is published by BP called the Statistical Review of World Energy, which noted that the increase was the largest in the world and the largest in US history. Rising domestic crude oil production, according to the report, was largely tied to increased use of hydraulic fracturing that has led to rapid growth in shale production in North Dakota and Texas.
US production levels in 2012 rose by 1.04 million barrels per day and daily production reached 8.9 million barrels per day - with only Russia and Saudi Arabia producing more crude oil at 10.6 and 11.5 million barrels per day respectively. The substantial increase in production surpassed the previous US annual growth record of 640,000 barrels per day set in 1967. The next largest increases in oil production levels, according to the BP report, were found in Iraq at 11%, Kuwait at 9%, and Canadian oil production rose by 7% in 2012. Natural gas production in the US grew by 4.7% in 2012 where it still remains the world's largest volumetric producer.
Improving energy efficiency and continued global economic stagnation managed to tamper growth in overall energy demand (up 1.8%), but the report found that emerging economies like China and India accounted for nearly 90% of the net increase in global consumption. Adding to headwinds to global energy production is political unrest and economic challenges in countries with major proven reserves. For example, Iranian oil production fell by 16% last year due to tough sanctions imposed on the bellicose regime in Tehran by the US and EU which have removed roughly 1 million barrels per day of spare capacity off the global market. Argentina provides another example with its significant shale reserves (estimated by the Energy Information Administration to be 774 trillion cubic feet of gas and 3.7 billion barrels of oil) that also suffers from a lack of private sector investment after the government nationalized and seized the assets of the country's largest oil company YPF that was owned by the Spanish firm Repsol.
Increasing US domestic energy production has surpassed the nation's capacity of pipeline infrastructure to carry it to markets. Regionally, there are gluts of crude oil in parts of the US; especially at Cushing, Oklahoma which is the nation's oil pipeline hub that also functions as the price settlement point for West Texas Intermediate crude oil on the New York Mercantile Exchange. The price spread, or price differential, last year between West Texas Intermediate crude and the global benchmark price of oil called Brent crude was roughly $17 according to the BP report. This glut and price swing have pushed increasing amounts of crude oil onto railroads for market delivery as new pipeline capacity starts to come on line.