U.S. Overtaking Russia as Globe’s Biggest Oil and Gas Producer

209778_5_Image credit: WSJ

The Wall Street Journal reports that the United States is overtaking Russia as the world’s largest oil and natural gas producer:

The U.S. is overtaking Russia as the world’s largest producer of oil and natural gas, a startling shift that is reshaping markets and eroding the clout of traditional energy-rich nations.

U.S. energy output has been surging in recent years, a comeback fueled by shale-rock formations of oil and natural gas that was unimaginable a decade ago. A Wall Street Journal analysis of global data shows that the U.S. is on track to pass Russia as the world’s largest producer of oil and gas combined this year—if it hasn’t already.

The U.S. ascendance comes as Russia has struggled to maintain its energy output and has yet to embrace technologies such as hydraulic fracturing that have boosted American reserves.

“This is a remarkable turn of events,” said Adam Sieminski, head of the U.S. Energy Information Administration. “This is a new era of thinking about market conditions, and opportunities created by these conditions, that you wouldn’t in a million years have dreamed about.”

If you notice the graph above, the United States began to significantly increase its output beginning around 2005-2006. This is thanks to hydraulic fracking which has allowed for increases in domestic oil production and an enormous increase in domestic natural gas production. Much of this technology has not yet spread to other countries, so it is possible that other countries will have strong increases in production similar to ours in the near future. Nonetheless, for strategic reasons having a significantly increased domestic supply of oil and gas is assuredly a good thing. The WSJ concludes:

So far, most companies aren’t dialing back, even though they need access to enormous amounts of capital to pay for the deep wells required to tap dense rock formations.

Much of the growth in fossil-fuel production comes from companies that need to sell shares, take on debt or sell assets to plug a gap between spending and their revenue. According to an estimate by Barclays major U.S. oil and gas explorers needed to raise $50.3 billion last year to close that gap.

Plenty of private-equity funding and overseas investment remains available, industry experts say, and debt remains relatively cheap.

“The dollars needed have never been larger,” said Maynard Holt, co-president of Houston-based investment bank Tudor, Pickering Holt & Co. “But the money is truly out there. The global energy capital river is flowing our way.”

U.S. energy producers also are drilling more efficiently and cutting costs in other ways. Some companies have said that the amount of oil and gas produced by shale wells isn’t dropping as fast as predicted.

Ken Hersh, chief executive of NGP Energy Capital Management LLC, a private-equity fund with $13 billion under management, said the immense amounts of oil and gas uncovered in recent years indicate that the U.S. energy boom could last a long time.

“It is not a supply question anymore,” he said. “It is about demand and the cost of production. Those are the two drivers.”

Read the entire article here.

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