U.S. set to overtake Saudi Arabia as world’s biggest oil producer following boom in output

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  • U.S. production to rise 7  per cent this year to nearly 11 million barrels a day
  • Could reach 11.4 million  barrels a day in 2013 – rivalling Saudi oil output
  • Boom caused by high oil  prices and new drilling techniques

By Sam Adams

PUBLISHED:08:01 EST, 24  October 2012| UPDATED:11:11 EST, 24 October 2012

The United States’ oil output is surging so  fast that the country could soon overtake Saudi Arabia as the world’s biggest  producer.

Driven by high prices and new drilling  methods, U.S. production of crude and other liquid hydrocarbons is on track to  rise seven per cent this year to an average of 10.9 million barrels a day.

This will be the fourth straight year of  crude increases and the biggest single-year gain since 1951.

On the up: The US is set to become the world's biggest oil producer following a recent boom in outputOn the up: The U.S. is set to become the world’s biggest  oil producer following a recent boom in output

The boom has surprised even the experts.

‘Five years ago, if I or anyone had predicted  today’s production growth, people would have thought we were crazy,’ says Jim  Burkhard, head of oil markets research at IHS CERA, an energy consulting firm.

The Energy Department forecasts that US  production of crude oil and other liquid hydrocarbons, which includes biofuels,  will average 11.4 million barrels per day next year.

That would be a record for the U.S. and just  below Saudi Arabia’s output of 11.6 million barrels.

Citibank forecasts US production could reach  13 million to 15 million barrels per day by 2020, helping to make North America  ‘the new Middle East.’

The last year the US was the world’s largest  producer was 2002, after the Saudis drastically cut production because of low  oil prices in the aftermath of 9/11.

Cost: The oil boom is, however, not expected to ease the cost of gasoline for hard-pressed US motoristsCost: The oil boom is, however, not expected to ease the  cost of gasoline for hard-pressed U.S. motorists

Rise in US oil productionBoom: US oil production has increased for four years in  a row and is expected to rise to 11.4 million barrels a day in 2013. On current  trends it could soon overtake Saudi Arabia’s output

Since then, the Saudis and the Russians have  been the world leaders.

Americans currently use around 18.7 million  barrels per day – but thanks to the growth in domestic production and the  improving fuel efficiency of the nation’s cars and trucks, imports could fall by  half by the end of the decade.

The increase in production has not translated  to cheaper gasoline at the pump, and prices are expected to stay relatively high  for the next few years because of growing demand for oil in developing nations  and political instability in the Middle East and North Africa.

Still, producing more oil domestically, and  importing less, gives the economy a significant boost.

Increased drilling is driving economic growth  in states such as North Dakota, Oklahoma, Wyoming, Montana and Texas, all of  which have unemployment rates far below the national average.

‘It’s the most important  change to the economy since the advent of personal computers pushed up  productivity in the 1990s’

– Philip Verleger, Peterson Institute of  International Economics

Businesses that serve the oil industry, such  as steel companies that supply drilling pipe and railroads that transport oil,  are not the only ones benefiting from the boom in production.

Homebuilders, auto dealers and retailers in  energy-producing states are also getting a lift.

The oil and gas drilling boom, which already  supports 1.7 million jobs, is expected to lead to the creation of 1.3 million  jobs across the U.S. economy by the end of the decade.

‘It’s the most important change to the  economy since the advent of personal computers pushed up productivity in the  1990s,’ says economist Philip Verleger, a visiting fellow at the Peterson  Institute of International Economics.

The major factor driving domestic production  higher is a new found ability to squeeze oil out of rock once thought too  difficult and expensive to tap.

Engineers have learned how to drill  horizontally into long, thin seams of shale and other rock that holds oil,  instead of searching for rare underground pools of hydrocarbons that have  accumulated over millions of years.

Competition: Saudi Arabia and Russia have led world oil production in recent years (file picture)Competition: Saudi Arabia and Russia have led world oil  production in recent years (file picture)

To free the oil and gas from the rock,  drillers crack it open by pumping water, sand and chemicals into the ground at  high pressure, in a process known as hydraulic fracturing, or  ‘fracking.’

The US oil boom has also  been influenced by a long period of high oil prices and the recovery of production in the Gulf of Mexico  following the 2010 BP well disaster and oil spill.

The most prolific of the new shale formations  are in North Dakota and Texas. Activity is also rising in Oklahoma, Colorado,  Ohio and other states.

Production from shale formations is expected  to grow from 1.6 million barrels per day this year to 4.2 million barrels per  day by 2020.

That means these new formations will yield  more oil by 2020 than major oil suppliers such as Iran and Canada produce today.

From 1986 to 2008, crude production in the US  fell every year but one – dropping by 44 percent over that period. The United  States imported nearly 60 percent of the oil it burned in 2006.

By the end of this year, US crude output will  be at its highest level since 1998 and oil imports will be lower than at any  time since 1992, at 41 percent of consumption.

Whether the US supplants Saudi Arabia as the  world’s biggest producer will depend on the price of oil and Saudi production in  the years ahead.

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