US crude oil output surges to new all-time record highs in January. It’s a great day for the US energy industry, a great day for the frackers, and a great day for American-style capitalism.
I haven’t used the Drudge Report siren in a long time, but thought it was appropriate today to announce a monumental and historic US energy milestone: US crude oil production set a monthly record in January of 10.2 million barrels per day (bpd), based on the EIA’s most recent monthly forecast that was released yesterday (see top chart above). January’s crude oil production topped the previous record of 10.04 million bpd established back in November 1970, more than 47 years ago. Today’s weekly petroleum balance sheet from the EIA reports that daily crude oil production last week through February 2 surged by 330,000 barrels from the previous week to establish a new weekly record high of 10.25 million barrels.
The top chart also shows the remarkable and complete reversal in the 40-year decline in America’s crude oil output from 1970 to 2010 that has taken place in less than the last decade, thanks to the revolutionary twin drilling and extraction technologies of hydraulic fracturing and horizontal drilling. From only 5 million barrels per day in early 2010, the rebound in US oil production from the bonanza of shale oil accessed by technological marvels of engineering and scientific innovation brought daily domestic oil output above the 10 million barrel benchmark in November for the first time since 1970, and up to the new monthly record of 10.2 million barrels in January. The new weekly production record of 10.25 million bpd last week further confirms the EIA estimate that US oil output will average 10.6 million bpd in 2018.
It wasn’t that long ago that we were wallowing in an era of energy scarcity, worried about our dependence on foreign oil and constantly hearing dire warnings about “peak oil.” For example, the bottom chart above shows a Google Trends search interest history of the term “peak oil” back to 2004, which peaked back in September 2005 (and again in 2008) but started declining steadily, especially as the shale revolution turbocharged America’s oil production by reaching oil resources that were previously inaccessible with conventional drilling and extraction methods. The record high oil production this year further solidifies America’s new status as a world energy superpower in a new era of US energy abundance.
The historic and economic significance of the record high oil output goes beyond just reaching a new energy production milestone. While that milestone is certainly important, it also reveals important lessons about American-style capitalism and the American ‘petropreneurs’ who risked their reputations and fortunes, and spent decades trying to “crack the shale code” that finally allowed them to extract oil and natural gas trapped in shale rock miles below the ground when everybody, including the large oil and gas companies, thought that was a crazy and futile exercise. America’s amazing shale revolution also happened completely independently of any planned government energy policy, and largely without any taxpayer subsidies or government mandates that other more politically-favored energies have received, like solar, wind, and ethanol.
Here’s how Gregory Zuckerman explained it in his excellent 2013 book The Frackers: The Outrageous Inside Story of the New Billionaire Wildcatters, which I reviewed on CD here:
A group of frackers, relying on markets cures rather than government direction, achieved dramatic advances by focusing on fossil fuels of all things. It’s a stark reminder that breakthroughs in the business world usually are achieved through incremental advances, often in the face of deep skepticism, rather than government-inspired eureka moments.
Foreign nations lack perhaps the key element behind the US energy revolution: an entrepreneurial culture and ample incentives for the years of trial and error necessary for shale breakthroughs. George Mitchell, Harold Hamm, Mark Papa, and other headstrong wildcatters persevered because they knew they could gain both fame and remarkable fortune finding economic ways to tap shale. Comparable prizes don’t always exist in other countries, where governments can play a larger role in society.
The United States also boasts an extensive energy infrastructure, such as pipelines and elaborate databases of underground geology, deep capital markets to finance drilling, more rigs than anyone else, collection and storage facilities, and an experienced labor force. The US legal system gives individuals ownership of mineral rights under their land and the ability to lease the rights to others. That has accelerated drilling in comparison with foreign nations, where mineral rights are controlled by slow-moving governments. And the United States benefits from light population density in places like North Dakota and Texas, where much of the richer shale beds are located.
There are a few things the United States seems to do better than anyone else, such as create computer apps, drones and rap stars. Fracking, so far, has been another area where there’s a distinct American advantage. For all of the criticism the country has fielded for losing its edge in innovation, surging American energy production is a reminder of the deep pools of ingenuity, risk taking, and entrepreneurship that remain in the country. The successes of the architects of the shale era are attributable to creativity, bravado, and a strong desire to get really wealthy. It doesn’t get more American than that.