DAVID BLACKMON, FORBES
Thanks to the rapidly increasing production from the Eagle Ford Shale and the Permian Basin, Texas reached another milestone in September, 2013: As a separate nation, Texas would now rank as the 9th largest oil producing country in the world.
As reported here by Dr. Mark Perry, according to the International Energy Agency (IEA), in the year preceding last September, Texas oil production surpassed that of oil-producing giants like Brazil, Venezuela, Nigeria, Mexico and Kuwait to move into the hypothetical Top Ten oil producing nations on earth. During September, Texas’ oil output was measured by IEA at 2.7 million barrels per day. This represents a doubling of the state’s daily oil output in just 29 months. Not since the early years of the 20th century has the state seen such a rapid rise in its oil output, and that steep incline shows no signs of slowing anytime soon.
If anything, the boom in West Texas might even accelerate in the next few years. The nascent Cline Shale play is beginning to heat up, and results continue to be very good in the Wolfberry/Sprayberry and other plays in the Permian. If current trends continue, it is very likely that Texas would leap past OPEC giants like Iran, Iraq and the United Arab Emirates to become the equivalent of the 6th largest oil producing nation over the next 12-18 months.
Anyone predicting this sort of meteoric rise in the state’s oil producing fortunes as recently as three years ago would have been labeled a nut case. And yet, here we are. Let’s take a look at some of the outcomes this ongoing boom in shale oil and natural gas production has produced:
- The Commerce Department reported recently that the November U.S. trade deficit was $34.3 billion, the lowest monthly deficit in more than four years. The single biggest factor? A $2.5 billion drop in the value of imported oil, made possible by the domestic oil boom. Crude imports were down by almost $40 billion during the first 11 months of 2013, a phenomenal decline during a period of economic growth.
- This dramatic decline in the trade deficit in turn led leading forecasters to significantly raise their projections for how rapidly the economy grew in the 4th quarter. Macroeconomic Advisors increased its estimate from 2.6% to 3.5%, which, if accurate, would be the single highest rate of quarterly economic growth since the onset of the Great Recession in 2008.
- Inexpensive and abundant natural gas is fueling a manufacturing renaissance in the U.S., producing tens of billions of dollars in new plant and equipment investment, and bringing tens of thousands well-paying jobs back from overseas.
- The U.S. boom has in turn significantly increased U.S. international competitiveness vis a vis Europe, where industrial leaders are in near panic at the loss of jobs and investment back across the Atlantic. Germany is in a particularly difficult fix, as it relies on exports for half of its annual GDP, and its energy costs remain on an upwards trajectory thanks to its wrong-headed over-reliance on non-competitive renewable fuel sources like wind and solar.
- The U.S. oil boom is also having an impact on the geopolitical balance of power. As Daniel Yergin noted on January 9, Iran is suddenly taking nuclear negotiations seriously, and that well might not have happened were it not for the boom in shale oil production in the United States.
- The boom in domestic oil production has also created a new national energy debate over whether it is time to repeal the 1970s-era restrictions on exporting crude oil. Some U.S. refiners, whose facilities are geared to refine heavier oils imported from overseas, are finding themselves overwhelmed by the increase in light, sweet crudes being produced from the Eagle Ford and other shale formations, and some producers are concerned they will find getting their product refined at reasonable prices increasingly difficult unless they are able to export some of it to international refining facilities. The good news for consumers is that this is the kind of debate that comes about thanks to abundance, not shortages like we saw in the 1970s.
- In Texas, as we’ve previously noted, the oil and gas boom, along with prudent fiscal management by leading policymakers, has fundamentally transformed the state’s budget picture from one of lingering annual shortfalls to one of steadily growing surpluses, along with a Rainy Day Fund that is consistently filled to the gills.
But abundance and growth bring their own challenges that must be addressed by communities, policymakers and the industry. The impacts of the industry’s heavy truck traffic remains an issue in South and West Texas, one that all interested stakeholders are working to address. Likewise, there is no question that water remains a compelling issue for everyone in these regions, and the industry must continue to develop ways to conserve water and to tap into the more abundant brackish water formations that lie beneath the Texas soil. Some recent studies have also postulated linkage between improperly sited and managed saltwater disposal wells and minor earthquake activity, and the Texas Railroad Commission and legislative leaders are beginning to take concrete steps to address this concern.
But again, these are all issues that come about thanks to the economic growth that is produced by resource abundance, and they sure beat the kinds of challenges Texans and all Americans suffered through during the oil shocks and resource constraints of the 1970s.
This truly is a great time to be a Texan. God Bless Texas.
Article first appeared in Forbes on January 10, 2014.