In 2012, world oil production was 84 billion barrels per day.
Saudi Arabia produced 10.5 billion barrels; Russia 10.2 billion and USA 9.7 billion. US oil output is poised to surpass Saudi Arabia’s in the next decade, making the world’s biggest fuel consumer almost self-reliant and putting it on track to become a net exporter.
The rise in US oil production is due to three factors:
- Breakthroughs in hydraulic fracturing opened up new oil production opportunities in North Dakota and Texas
- Record oil prices resulted in record investments by oil companies for new production
- Higher oil prices enabled more marginal oil to be produced (made possible by the first two factors).
With increased production and lower demand, basic economics dictates that fuel oil prices should be falling, not rising.
But developing countries such as China and India are demanding more and global demand for oil is increasing faster than production can offset. Instability in the Middle East during the Arab Spring and sanctions against Iran has reduced total global supply. The new hydraulic fracturing oilfields in North Dakota do not have the pipeline infrastructure to pump oil directly to refineries resulting in oil prices there falling to as low as $60 dollars a barrel compared to world prices of around $115 dollars.
Global oil reserves rose by 31 billion barrels to 1,653 billion barrels in 2011.
The 84 billion barrels produced in 2012 is of a lower quality than the 32 million barrels produced in 1965. Crude oil is getting heavier, contains more sulphur (i.e. is more sour) and requires more energy both to produce and to refine. Since 1985 the overall mix of oil going to US refineries is 5.5% heavier and contains 54% more sulphur.
The implications of this are:
- Refineries have to become more complex to process this oil
- The net energy that can be obtained from a barrel of oil is declining
- The costs to process it are higher.
- This trend will continue as the world uses up the remaining supplies of light, sweet crude oil.