America’s oil fields are gushing again, helping to drive down fuel prices but also threatening to undermine efforts to reduce greenhouse gas emissions.
Just three years after the collapse of US oil production during the pandemic, energy companies are producing a record 13.2 million barrels per day, more than Russia or Saudi Arabia. Oil flow has increased by about 800,000 barrels per day since the beginning of 2022 and analysts expect the industry to add another 500,000 barrels per day next year.
The main driver of the production increase is a delayed response to the Russian invasion of Ukraine in early 2022, which sent the price of oil well above $100 a barrel for the first time in almost a decade. Wells that were first drilled last year are now fully operational.
With the increase in production, gasoline prices have fallen about $2 per gallon since the summer of 2022 and are now back to the levels that prevailed in 2021. The increase in production has also provided the Biden administration with a substantial influence in their oil dealings. -export to enemies like Russia, Venezuela and Iran while reducing their need to cajole friendlier countries like Saudi Arabia into moderating prices.
But the recovery of US oil production also poses big risks. Greater supply and lower prices could increase demand for fossil fuels as world leaders meeting in Dubai strive to reach agreements to accelerate the fight against climate change. Scientists generally agree that the world is far from meeting the goals needed to avoid the catastrophic effects of global warming, caused primarily by the burning of fossil fuels such as oil, natural gas and coal.
“We are achieving energy security and reducing inflation by leveraging high-emission, high-carbon oil production,” said Amy Myers Jaffe, director of the Energy, Climate Justice and Sustainability Laboratory at New York University. “We’re going to need to address that conflict.”
The United States now exports about four million barrels a day, more than any member of the Organization of the Petroleum Exporting Countries except Saudi Arabia. As a whole, the United States still imports more than it exports because domestic demand exceeds supply and many U.S. refiners can more easily refine the heavier oil produced in Canada and Latin America than the lighter crude oozing from the shale fields of New Mexico, in the North. Dakota and Texas.
Nearly every extra barrel of U.S. crude produced is exported, mainly to Europe and Asia, where supply is tight. In addition, natural gas that often bubbles with oil has also led to record gas exports and contributed to lower prices for that fuel and for electricity, much of which is produced in gas-fired power plants in USA.
Rising U.S. production has helped end the energy crisis that hit Europe after Russia’s invasion of Ukraine in February 2022, at least for now. European countries have replaced much of the gas they bought from Russia with gas from the United States, Qatar and other exporters. They have also reduced their use of natural gas, a phenomenon that was helped by a mild winter last year.
“There is a foreign policy dividend in keeping oil prices in check,” said David Goldwyn, who was a top energy diplomat in the Obama administration.
Not long ago, the American oil industry was in serious trouble. It suffered repeated declines since 2015, culminating in a price collapse during the pandemic. The investors fled. Exxon Mobil was kicked out of the Dow Jones Industrial Average and some European oil companies announced plans to more quickly shift from fossil fuels to renewable energy.
With growing concerns about climate change, Joe Biden, during his 2020 campaign, promised to stop drilling on federal offshore lands and waters. He also pledged to accelerate the transition to renewable energy and electric cars to dramatically reduce the emissions responsible for climate change.
But as president, Biden has taken a very different tack. While he has supported green energy and battery-powered cars, he has also pressured oil companies to increase production in an effort to lower prices for consumers. He has approved a major drilling project in Alaska despite objections from environmentalists and a small number of offshore oil and gas permits.
Biden has been under pressure from some Democrats to tout increases in oil production as a way to reach voters wary of high gas prices. He hasn’t done it yet, but his administration hasn’t complained about production either.
John Kirby, a spokesman for the White House National Security Council, said the administration was committed to keeping energy prices low.
“The president will continue to focus, as he has so far, on a healthy global market that is properly balanced and can continue to drive down the price of gasoline here in the United States,” Kirby said.
The pandemic severely affected U.S. oil production, which fell from 13 million barrels per day in late 2019 to just over 11 million barrels per day a year later. Dozens of oil companies closed and the number of rigs in use fell from 800 to 350 in 2020, when tens of thousands of field workers lost their jobs.
Most of the new U.S. oil production comes from the Permian Basin, which straddles Texas and New Mexico. There are also some new projects and expansions in Alaska and offshore in the Gulf of Mexico.
“It’s the mother of all comeback stories,” said Robert McNally, who was a top energy adviser under President George W. Bush. “The last few years have shown that you should never bet against the US oil sector.”
The boom has helped American consumers. This week the average price of a gallon of regular gasoline was $3.25 a gallon, 25 cents below what it cost a year earlier and almost $1.80 below the record price set in June 2022, according to AAA.
But the benefits to the oil industry’s workforce have been modest: The industry has only created about 8,000 jobs over the past year. There has been no repeat of the dramatic oil and gas job growth of a decade ago that brought an economic boom to small towns in Texas and North Dakota. This is because wells drilled through shale are laid down much faster now and fewer workers are needed to operate the rigs thanks to software improvements and robotics.
The industry has also discovered ways to produce more oil and gas by lengthening lateral wells that cut through hard shale rock, exposing more rock to fracturing than was possible a few years ago.
Of course, the current production boom may not be sustained. The oil industry is very cyclical. And shale wells, in particular, are highly productive for only a couple of years, so a decline in drilling brings with it a rapid and steep drop in production. In contrast, a rapid return to drilling triggers an increase in production.
That said, price is what drives investment and production. Even when oil prices surpassed $100 a barrel after the Russian invasion of Ukraine, larger companies like Exxon Mobil and Chevron decided not to significantly increase drilling because they feared a price collapse. Instead, companies spent billions of dollars buying back shares and distributing dividends.
However, in late 2022, smaller public companies and hundreds of private companies began to ramp up their operations. Many small companies were purchased by larger companies, which also stimulated greater production.
“Independents are back close to pre-pandemic activity,” said Raoul LeBlanc, vice president of S&P Global Commodity Insights. “And the soldiers just went crazy.”
LeBlanc said investments made during the second half of last year were now paying off. He predicted that U.S. production could rise to 13.7 million barrels per day by the end of 2024, unless there is a deep recession and prices fall below $65 a barrel, about $10 less than the current price.
“I’m very surprised by how much we’ve produced this year,” said Scott Sheffield, chief executive of Pioneer Natural Resources, a major Permian Basin producer that is being acquired by Exxon Mobil. He predicted the country could produce 15 million barrels a day within five years.
Production is also growing in Canada, Guyana, Brazil and Norway.
Sheffield said “the big question” is how Saudi Arabia might respond if production in the United States and other countries continues to rise.
As leader of OPEC Plus, a group of 23 oil-producing countries that together produce nearly half of the world’s oil, Saudi Arabia could eventually pressure its allies to flood the market with oil in an effort to sharply lower prices. . That would bankrupt American companies or force them to drastically reduce production.
Investors have become more fond of oil lately, and shares of Exxon, Chevron and other companies have risen sharply in the past two years. But that could be changing. The price of oil has been falling lately and is down more than 15 percent since the summer.
Sheffield said drastic swings in energy prices were one of the main reasons investors were wary of his industry. “The reason for the lack of investor interest is the volatility of our business,” he said. “Discipline is not out of the question, but we need to solve this volatility problem and I don’t know when we are going to solve it.”
Jim Tankersley contributed reporting from Dubai, United Arab Emirates.
