U.S. oil production was estimated at 11.7 million barrels a day during the week ending November 16, over 2 million barrels per day more than during the same time period in 2017—a 21-percent increase.  For perspective, the increase is almost equivalent to all of Mexico’s production in 2017. The Energy Information Administration expects oil production to average 10.9 million barrels per day this year and over 12 million barrels per day in 2019. U.S. oil production has doubled in the past eight years due to oil produced by hydraulic fracturing and horizontal drilling in shale basins. Earlier this year, the United States had overtaken oil production in Saudi Arabia and Russia on a monthly basis, making it the world’s top oil producing nation. In less than a decade, U.S. companies have drilled 114,000 wells in the Permian Basin of Texas alone and many of them could turn a profit with crude prices as low as $30 a barrel.

Source: Energy Information Administration

U.S. Oil Production Bottle-Necked

Oil producers have been hampered by insufficient pipelines to move oil from the Permian Basin in Texas and the Bakkan formation in North Dakota. Production was able to increase in the Permian Basin, however, by shipping oil via rail cars and trucks and increasing pipeline capacity by adding chemicals known as “drag reduction agents’’ to increase flow. Also, a new pipeline came online earlier than expected. The Bakkan was also helped by the completion of the Dakota Access Pipeline, which was the focus of international attention because of violent protests by anti-fossil fuel groups.

Production is expected to increase even more next year in the Permian as three oil pipelines are completed between August and December in Texas. The pipelines will provide an outlet for crude oil produced in the Permian Basin and increase shipping capacity by as much as 2 million barrels of oil a day. Because of the new pipeline capacity expected in the third quarter of next year, oil companies in the Permian Basin are drilling wells but are not fracking many of them. Those wells will be ready for production when the new pipelines—Gray Oak, Cactus II, and Epic—come online.

Source: Bloomberg

The obstacle then will be export capacity, as most of the incremental output will need to be exported. With export terminals nearly full, oil from the Permian Basin could be held up at the ports of Corpus Christi and/or Houston. New export facilities, however, are in the works: Enterprise Products Partners wants to build an offshore crude oil loading terminal 80 miles off the coast near Galveston, and Swiss commodities trader Trafigura wants to build one 15 miles offshore near Corpus Christi. The Port of Corpus Christi is planning a $1 billion onshore export terminal on Harbor Island, near Port Aransas, and the Oklahoma pipeline company Magellan Midstream Partners is evaluating building an oil export terminal on Harbor Island.

Net Petroleum Exports

Since a ban on crude oil exports was lifted at the end of 2015, U.S. crude oil exports have more than doubled from 465,000 barrels a day in 2015 to nearly 1.2 million barrels per day in 2017. Through August, oil exports have averaged 1.8 million barrels a day. Lifting the ban has allowed efficiencies in the market to occur which benefits world markets and consumers at home. The qualities of much of the U.S. shale oil do not match the requirements of refineries in the United States built to take heavier, sourer crude oils than the light, sweet oils that typically come from shale projects. The U.S. imports grades that align with our refineries and exports those that do not.

Source: Energy Information Administration

Some forecasters believe that U.S. net imports of petroleum will decline in December 2019 to 320,000 barrels a day, the lowest since 1949, from an expected 2.4 million barrels per day in 2018. And, in fact, in the first week of this month, it was reported by EIA that the U.S. was a weekly net oil exporter for the first since 1991.

According to a report by the research firm IHS Markit, the United States could become a consistent net petroleum exporter by 2022. The firm projects that as petroleum exports increase, crude imports will decrease, turning the United States from a net importer to a net exporter by 2022.

Conclusion

U.S. oil production is expected to average to 12 million barrels per day in 2019 as bottlenecks to transporting crude oil are alleviated with new oil pipelines in the Permian Basin able to move crude oil to terminals at Texas ports for export. The United States is expected to become a net petroleum exporter by 2022. The United States now ranks number one in oil production having exceeded oil production in Russia and Saudi Arabia on a monthly basis earlier this year. Our production increase in the last year alone was almost equivalent to Mexico’s oil production, and about the same as Venezuela’s—a founding member of OPEC.