The United States Is the Biggest Crude Oil Producer: How Pipeline Bottlenecks Might Impact That Status

The-United-States-Is-the-Biggest-Crude-Oil-Producer-How-Pipeli

Oil markets are currently undergoing significant changes. Demand that was once concentrated in developed countries and transportation fuels is increasingly shifting to Asian markets and the petrochemical industry. And perhaps more surprisingly, the United States is leading the expansion of the global crude oil supply.

The United States has long been one of the world's largest producers of crude oil. But recently, the United States surpassed leaders Russia and Saudi Arabia to become the number one crude oil producer in the world. As of February 2020, the United States was producing a record 13,000 barrels of crude oil every day.

However, staying atop the rankings as the largest crude oil producer will be a challenge, and handling oil pipeline bottlenecks forms a substantial part of that undertaking. Below, we'll discuss some history of crude oil production, explore a few of the factors that led to the United States' rise and assess one of the major supply chain challenges in the oil and gas industry: pipeline bottlenecks.

 

The History of Crude Oil Production

For decades, Russia, Saudi Arabia and the United States have been three of the world's largest oil producers.

 

Russia

On the world stage, Russia and Saudi Arabia have long been major players in the production of crude oil. Imperial Russia first began producing substantial amounts of oil in the 1800s, in the oilfields near Baku, located in present-day Azerbaijan. By the beginning of the 20th century, Russia supplied about 31% of the world's oil. Soon afterward, however, advances in western technology caused Russian crude oil production to lag, and by 1913 Russia was producing only 9% of the world's crude oil.

That figure changed, though, with the discovery of vast oilfields in Russia's Volga-Urals region during World War II. Serious drilling efforts there began in 1955, and by the end of the 1950s, Russia was again one of the world's major producers of crude oil, surpassing Venezuela and second only to the United States. When the Volga-Urals oil was exhausted, Russia's oil and gas industry turned to the Siberian oilfields. Western Siberia soon became the biggest oil-producing region in Russia's history, and Russia remained a leading producer of crude oil throughout the decades to come.

 

Saudi Arabia

In Saudi Arabia, meanwhile, oil was first discovered in 1933, and the Arabian American Oil Company (Aramco), a partnership between the Saudi Arabian government and the Standard Oil Company of California, soon became a major player in the industry. The company built thousands of miles of pipelines in Saudi Arabia and began exporting billions of barrels of oil.

In 1973, because of the Arab-Israeli war of that year, several Middle Eastern members of The Organization of the Petroleum Exporting Countries (OPEC) embargoed oil products from the United States and other countries in retaliation for those countries' support of Israel. These events drove up oil prices, precipitating the 1973 oil crisis in the United States and paving the way for Saudia Arabia to become the world's foremost oil-producing country. Saudi Arabia would remain in that position for over two decades.

 

United States

United-States

The United States was the world leader in crude oil production from the beginning of the 20th century to 1974 but fell behind after the oil crisis of the 1970s.

U.S. crude oil production first began its substantial tick upward in 2011. Much of that growth came from the production of light, sweet crude oil grades. And much of that production took place in areas such as the Permian region in western Texas and eastern New Mexico, the Bakken region in North Dakota and Montana, and the federal offshore waters in the Gulf of Mexico.

In 2018, the United States surpassed Saudia Arabia and Russia to become the world's leading producer of crude oil. In February of that year, U.S. crude oil production exceeded that of Saudia Arabia for the first time in 20 years. In August 2018, the United States surpassed Russia in crude oil output as well.

As of late 2018, the United States produced about 18% of the world's crude oil. Saudi Arabia followed in second place with 12%, and Russia had fallen slightly behind with 11%. The most recent projections indicate that by 2025, U.S. crude oil production will surpass that of Russia and Saudi Arabia combined.

 

Factors That Contributed to the United States' Historic Production Levels

Several different factors have contributed to the United States' historic recent production of crude oil.

 

Fracking

A substantial amount of the increase in production is attributable to the rise of hydraulic fracturing, or fracking, in the shale formations in North Dakota and Texas. The International Energy Agency (IEA) reports that in 2010, U.S. shale production was virtually nonexistent, while by 2019, U.S. shale production amounted to approximately 7 million barrels a day, with that figure projected to rise at least through 2024. The U.S. shale industry can respond to increasing global oil prices more readily than other sectors, so U.S. shale production could increase even more if prices rise.

 

Increased Global Demand

Since 2006, the global demand for crude oil has been steadily increasing. In 2010, the global demand for crude oil amounted to 86.4 million barrels a day. By 2020, that figure was projected to rise to 101.6 million barrels a day. In China and India, especially, the demand for crude oil has been rising as the countries continue to industrialize.

 

Plastics and Manufacturing

Increased demand for oil in plastics and manufacturing has also contributed to increased crude oil production. Despite many local efforts to minimize plastics consumption and promote recycling, the overall global demand for plastics and petrochemicals remains high.

The IEA predicted in 2018 that petrochemicals were in line to be the primary driver of demand for decades to come. Petrochemicals are oil and gas derivatives used in a variety of products, including plastics, packaging, textiles, fertilizers, detergents, consumer electronics, medical equipment and even rubber tires. They are also necessary for the manufacture of modern energy components such as solar panels, wind turbines, batteries, thermal insulation and electric vehicles. They will account for a third of the growth in the global oil demand through 2030 and almost half the growth through 2050, according to the IEA.

 

Increased Plane Travel

Increased plane travel has also accounted for some of the United States' increased crude oil production. According to the IEA, air travel has more than doubled since 2000 — for instance, 2018 saw a record 4.3 billion air travel passengers globally. The demand for both passenger and freight aviation is predicted to remain robust well into the future.

 

Better Technology

Another contributor to the United States' recent success in crude oil production is the advent of better technology. The most significant developments have taken place in the field of drilling and completions, including horizontal drilling, extension and hydraulic fracturing. Progress in technology development over the past decade has tended to focus on the following areas of improvement:

  • Sophisticated data acquisition, processing and visualization.
  • Water conservation and protection, primarily through technology that allows for better water reuse.
  • Materials science, especially in materials used for wellbore isolation and integrity.
  • Increased reservoir recovery factors, primarily through stimulation.
  • CO2 enhanced oil recovery (CO2 EOR), which enhances carbon sequestration.
  • Oil spill prevention technology for deep- and ultra-deepwater applications.

 

The Impacts of Pipeline Bottlenecks

The Impacts of Pipeline Bottlenecks

Pipeline bottlenecks occur when more crude oil is produced than the existing infrastructure can transport. Infrastructure insufficiency often involves a lack of pipeline capacity, though it can also mean a shortage in the labor force or equipment necessary to move crude oil. The Permian Basin bottleneck in the United States is one such bottleneck. Currently, pipelines from West Texas to the Gulf Coast are full, and new pipeline projects intended to ease the burden are not yet operational.

Pipeline bottlenecks produce several adverse effects on the oil industry.

 

Dependence on Other Oil Sources

A pipeline bottleneck can result in dependence on external oil sources, despite the local region's massive production capacity. If the oil the region is producing cannot get to refineries, the region has no choice but to import oil from other sources. Recent reports show that pipeline bottlenecks have directly contributed to a slowdown in the once-rapid decline of U.S. oil imports. East Coast refineries, in particular, are heavily dependent on crude oil from abroad because of the lack of existing infrastructure to transport crude oil from Midwestern sites, such as the Bakken oilfield in eastern Montana and western North Dakota.

 

Maxed-out Capacities

Maxed-out pipeline capacities back up the oil and gas supply chain and diminish its efficiency. Even if the region is producing hundreds of thousands of barrels of crude oil a day, its effective capacities are much lower and its outputs flatten if it cannot move those barrels to other regions and refineries. 

Maxed-out capacities can also occur because the region doesn't have the space necessary to accommodate the numerous pipeline routes that would be necessary to alleviate the bottleneck. In this case, the oil supply chain may remain backed up even though oil production is high.

 

Economic Effects

Pipeline bottlenecks contribute to adverse economic effects — lowered oil prices chief among them. As pipelines fill to capacity, producers must sell their products cheaply as they run out of storage space. As of mid-2018, Permian oil was selling at $13 to $16 a barrel below what its contracts would otherwise have been. While U.S. crude futures were trading at around $71 a barrel, shale oil from Midland, Texas — located in the Permian Basin — was selling at about $58 a barrel. However, consumers do not benefit from these lowered prices, since the pipeline bottleneck forces U.S. producers to use less efficient, costlier methods of transportation like trains and trucks, thus driving the consumer prices back up.

 

Revenue Loss

Those discounted oil prices lead to revenue losses for producers. In Canada, pipeline bottlenecks cost oil producers $20 billion in one year. As in the Permian Basin, Albertan oilfields have suffered from a shortage of pipeline infrastructure. The resulting glut of oil reserves has forced producers to sell off their oil at dramatically reduced prices. In September of 2018, western Canadian oilfields were producing 4.3 million barrels per day, but pipeline infrastructure could accommodate only about 3.9 million barrels per day. As a result, western Canadian oil prices averaged $38.30 (USD) a barrel in 2018 instead of the $52.90 they would have commanded otherwise.

Pipeline bottlenecks also contribute to economic losses by diminishing the revenues from oil exports. Diminished supply leads to diminished stores of oil available to be shipped abroad, and reduced exports lead to reduced profits overall.

 

How to Avoid Pipeline Bottlenecks

How-to-Avoid-Pipeline-Bottlenecks

The oil industry can take several steps to help avoid pipeline bottlenecks and mitigate their adverse effects:

  • Discover system bottlenecks: One of the first steps toward preventing pipeline bottlenecks is determining where they occur. Mapping and analyzing system flow to discover the source of a slowdown is advisable. One of the best ways to do this is to develop a simulation model that includes terminals, tanks, pipelines and oil batches. The model output could include batch movement history, terminal and tank usage capacity, and pipelines’ batch movement speed and throughput. Analysis of this data would enable oil companies to locate bottlenecks quickly and determine why they had occurred.
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  • Change design: Sometimes oil companies must change their designs to alleviate pipeline bottlenecks. They might need to adjust terminals, pipelines or tanks or retrofit outdated equipment to better accommodate the flow of produced oil. They might also want to compare flow rates, pipe diameters, pressures and so forth with the design specifications of process equipment. Companies should also evaluate any design changes after the fact to assess the efficacy of their alterations.
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  • Add Infrastructure: Adding infrastructure is often a beneficial design change — building new pipelines increases the throughput capacity of an oil producer radically. Adding infrastructure may involve surmounting legal and regulatory barriers, however. Before pipeline projects can proceed, they should be able to demonstrate that they can comply fully with safety and environmental regulations so state and federal permits can be issued. Companies should also be able to cooperate fairly and humanely with the rightful owners of the land through which the proposed pipelines pass.
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  • Improve oilfield products: Starting at the beginning of the oil production process, better products can reduce on-site bottlenecks. The oilfield products manufactured by Global Elastomeric Products, for instance, can help alleviate on-site bottlenecks by ensuring that operations run smoothly, efficiently and safely and without backups. From blowout preventers to oil well casings to drilling machine parts and more, we have the long-lasting, high-quality products you need to keep your processes productive and your throughput high.

 

Contact Global Elastomeric Products for All Your Oilfield Production Needs

Contact-Global-Elastomeric-Products-for-All-Your-Oilfield

To improve your oilfield production and help reduce bottlenecks, contact Global Elastomeric Products. We are ISO certified, and our in-house design engineers can craft custom products that are just the right fit for your specific equipment and applications. We can provide both standard and custom designs and products, and no project is too big or too small for our detail-oriented, experienced and knowledgeable team. Our quick turnaround and friendly customer service set us apart from the rest of the field, and we guarantee that our products will be free from defects, 100% of the time.

We are happy to answer questions about how you can improve your oilfield production. Contact us today to learn more.

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