U.S. Crude Oil Production Exceeds Imports in October 2013

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Written by John Egan for Industrial Info Resources (Sugar Land, Texas)--U.S. crude oil production averaged 7.74 million barrels per day (BBL/d) in October, slightly more than imports, marking the first time in more than 18 years that domestic production exceeded imports on a monthly basis, according to the "Short-Term Energy Outlook" (STEO) released this week by the U.S. Energy Information Administration (EIA) (Washington, D.C.). Crude oil imports averaged 7.57 million BBL/d for October, the EIA said. Prior to October, the last month that domestic crude oil production exceeded imports was February 1995, the agency added.

The surge in domestic crude oil production is a result of the widespread use of horizontal drilling and hydraulic fracturing, the STEO said.

Domestic crude oil production is expected to average 7.5 million BBL/d this year and 8.5 million BBL/d in 2014, predicted the EIA, the independent statistical and analytic branch of the U.S. Department of Energy (DoE) (Washington, D.C.).

Click icon at right for a chart showing crude oil imports and domestic production between 1994 and 2013.

Dramatic production gains from a few onshore areas have driven the recent surge in domestic crude oil production, according to EIA data. In the six-year period between October 2007 and October 2013, average daily production of crude oil in the Bakken formation increased more than 500%, to about 950,000 BBL/d from 145,000 BBL/d in October 2007. Production gains in the Eagle Ford have been even more dramatic: October 2013's average daily production of 1.218 million BBL/d is a 2,200% increase over the 52,000 BBL/d that area produced in October 2007.

Click the icon at right for a chart showing average daily production on a monthly basis from October 2007 to October 2013.

Looking to the end of this year, the EIA projects modest production increases in the Bakken, Eagle Ford, Marcellus and Niobrara.

"The growth of domestic production is something EIA has been forecasting since earlier this year," said Tancred Lidderdale, an EIA economist, to the Bloomberg news service. "Crude oil production from shale oil has been steadily growing over the last few years, and it's expected to continue to grow."

"This week's STEO is another welcome piece of good news about the renaissance of domestic oil & gas production," said Jesus Davis, Industrial Info's vice president of research for the Oil & Gas Production, Pipelines and Terminals industries. "And as the U.S. and other economies continue their economic recoveries, we see increased demand for crude oil going forward. The world apparently has made peace with crude oil priced near $100 per barrel."

West Texas Intermediate (WTI) crude oil, a benchmark U.S. crude, will average $94 per barrel in the fourth quarter of 2013, and $95 per barrel in 2014. The price of another benchmark crude, Brent, is expected to continue weakening in the fourth quarter as non-OPEC supply growth, mainly from the U.S., exceeds global demand growth. By year-end 2013, Brent will be selling for an average of $106 per barrel. For 2014, Brent's average selling price will be $103 per barrel, the agency forecast.

"The discount of WTI crude oil to Brent crude oil, which averaged $18 per barrel in 2012 and then fell to $3 per barrel in July 2013, averaged $9 per barrel during October," the EIA said. The agency expects the WTI discount to average $10 per barrel during the fourth quarter of 2013 and $8 per barrel during 2014.

Economists hailed the new data as having a positive effect on the U.S. trade deficit. National security analysts cheered the rising energy self-reliance, noting that it lessened U.S. vulnerability to coercive "petro diplomacy," such as the 1973 OPEC oil embargo against the U.S. for supporting Israel in the Yom Kippur War.

EIA's STEO also contained good news about domestic onshore natural gas production, though persistently low prices have taken some of the shine off rising production data.

Average daily gas production has soared more than 800% in the Marcellus between October 2007 and October 2013. Average daily production in the Bakken has shot up 427% over that time, to 1.054 billion cubic feet per day (Bcf/d) from 200 million cubic feet per day (MMcf/d) in October 2007. And over the last six years, gas production in the Eagle Ford jumped about 226%, to 5.9 billion cubic feet per day (Bcf/d) last month from about 1.6 Bcf/d in October 2007.

Gas production in some formations has been aided by the presence of crude oil or natural gas liquids (NGLs), which are produced alongside gas. Having these additional revenue streams helps to offset low gas prices. But in dry gas areas like the Haynesville, production has dropped in recent years as low gas prices undercut the economic viability of producing dry gas.

Click the icon at right to see a chart of EIA's domestic gas production data from six onshore areas.

For 2013, EIA predicts the spot price of gas at the Henry Hub will average $3.68 per million British thermal units (MMBtu), a solid increase over the $2.75 per MMBtu that commodity fetched there in 2012. For 2014, EIA sees Henry Hub spot gas averaging $3.84 per MMBtu.

"Gas storage levels are pretty flat with the five-year average, so barring a colder-than-average winter, gas producers should be prepared for a continuation of today's low-price environment," said Industrial Info's Davis. "On the brighter side, global demand for gas continues to grow. As U.S. liquefied natural gas (LNG) terminals are constructed, gas producers--particularly in the Haynesville--may be able to profitably access overseas markets."

Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, three offices in North America and nine international offices, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle™, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities.