The Future Is Incredible For US Oil Production – Analysis

HSBC predicted in a recent report that Texas is set to outpace Iran and Iraq in oil production. Furthermore, HSBC stated the Permian Basin in West Texas and the Eagle Ford are likely to produce 5.6 million barrels per day (bpd) by 2019. Iraq is expected to produce 4.8 million bpd and Iran 3 million bpd. If HSBC’s analysis comes true then Texas would become the world’s number three-oil producer.

This news means the United States should surpass Russia and Saudi Arabia in 2019 as the number one oil producer in the world based on Texas’ output. The Energy Information Administration (EIA) expects US production to reach 12 million bpd by late 2019. A stunning accomplishment when you consider during the Saudi-led war on US shale that crashed oil prices in 2014, bankruptcies overtook the Permian Basin and production in the US fell from 9.6 million bpd to 8.5 million bpd.

There are three reasons why US oil production is skyrocketing. Number one is demand is rising. OPEC has recently forecast that global oil demand should, “surpass 100 million barrels per day next year.” The group sees demand increasing by “1.45 million bpd next year,” however trade tensions between the US, China, Canada, the EU and other longstanding trade agreements in question could temper growth. OPEC qualified their report about demand rising over trade worries by saying, “If trade tensions rise further and given other uncertainties, it could weigh on business and consumer sentiment.” With the US and the EU working towards resolving a looming trade dispute over increased tariffs in late July this is a positive first step towards global oil demand staying strong.

Second, US federal tax policies are favorable towards exploration and production (E&P), which will assist with production increases. President Trump’s America First Energy Plan states:

“That we (the US) have vast untapped domestic energy reserves. We must take advantage of the estimated $50 trillion in untapped shale, oil and natural gas reserves, especially those on federal lands.”

According to Karen Alderman Harbert, President of the U.S. Chamber of Commerce’s Global Energy Institute believes record-breaking oil production will also lead to, “an explosion in exports.” Growth in exports will allow additional supply to be sold that otherwise wouldn’t come to market. Expanding energy development – particularly, expanding fossil fuel exports – will be a top priority for the Trump administration as they will also use energy as a geopolitical tool. Texas is the example for the US moving forward of government and private business working towards expanding oil and natural gas production. US government policies will continue moving in this direction.

The third and biggest reason is use of technology where the US is making their greatest gains towards increased production. Since the 2014 crash shale companies have slashed costs, but also employed automation and cutting edge technologies like robotics, sensors and smart phone to keep drilling. The oil and gas industry is undergoing a modernization push.

This was on display in June at the Unify Conference, “an industry forum on digital technology put on by Baker Hughes,” in Houston Texas. At this conference technology companies like Google and Microsoft pitched energy executives to purchase cloud and artificial intelligence deals. Darryl Willis of Google who presented at Unify said, “Energy companies have reams of data but only use 5% of it, a serious problem in the digital economy.”

Silicon Valley believes they can manage data better than E&P firms. Chevron signed a seven-year deal with Microsoft to, “capture and store the terabytes of data Chevron generates around the globe, “ said Bill Braun Chevron’s chief information officer. Other firms use the cloud to, “find more oil and predicting needed maintenance on equipment before it breaks down.” Inefficient and antiquated ways that kept US oil production lower is now being replace by complex but diversified approaches to new technologies to stay competitive in an ever-changing global environment.

Shale growth is increasing on a monthly basis but geopolitical tensions could dramatically lower this growth. Trade disputes with China where Trump has threatened over $500 billion in tariffs or a war with Iran could send oil prices into the $100 and above range. This would also lower oil demand and send countries and consumers into lower cost energy options like renewable energy and electric vehicles. In other words, only extreme geopolitical situations can lower US oil production, otherwise the future is positive based on growing demand, favorable governmental policies and embracing technology.

*Todd Royal, M.P.P. is the Managing Partner for Energy development, Oil & Gas, and Renewables for Ascendance Strategies, a global threat assessment and political consulting firm that is based in Los Angeles, California