The strong growth in U.S. crude oil production, primarily attributable to growing volumes of crude oil produced from tight oil formations, has been a major oil market story in recent years. The U.S. Energy Information Administration (EIA) estimates that U.S. total crude oil production averaged 6.4 million barrels per day (bbl/d) in 2012, the highest annual average rate of production since 1997, and an 0.8-million-bbl/d increase from 2011 (Figure 1). This month, EIA is extending the Short-Term Energy Outlook(STEO), forecast period through 2014 for the first time. In this forecast, EIA expects continuing strong growth, with U.S. crude oil production increasing to 7.3 million bbl/d in 2013 and 7.9 million bbl/d in 2014, the highest annual rate of crude oil production since 1988.
Over the past three years, crude oil production growth in the United States has been driven by increased drilling in tight oil formations in Texas, North Dakota, and a handful of other states. STEO forecasts published throughout 2012 were repeatedly revised higher as new production data indicated improvements in rig efficiencies (the number of wells a rig can drill in a year) and initial production rates (average production per day over the first 30 days of a well's production).
The same drivers of upward revisions to the 2012 forecast are driving expectations of strong production growth through 2014. Central to STEO's crude oil production forecast will be ongoing development activity in key onshore basins. In particular, drilling in tight oil plays in the Williston (which includes the Bakken formation), Western Gulf (which includes the Eagle Ford formation), and Permian basins are expected to account for the bulk of growth through 2014. Williston Basin production is expected to rise from an estimated December 2012 level of 0.8 million bbl/d to 1.2 million bbl/d in December 2014. Western Gulf Basin production rises from an estimated December 2012 level of 1.1 million bbl/d to 1.8 million bbl/d in December 2014. Within the Western Gulf Basin, roughly 0.4 million bbl/d of the oil production is outside of the Eagle Ford formation.
The Western Gulf Basin accounts for more than half of the onshore domestic liquids production growth due to a comparatively large amount of liquids coming from both oil and gas wells compared with the other key production basins. The Permian Basin in West Texas, which includes plays such as Spraberry, Bonespring, and Wolfcamp, is a third key growth area. EIA estimates that crude oil production from the Permian Basin reached 1.2 million bbl/d in December 2012. Permian Basin production is projected to increase to 1.4 million bbl/d in December 2014. Although average initial liquids production volumes from Permian wells have risen, the production forecast for this basin has been scaled back due to lower rig efficiency across all wells being drilled in the region.
The Western Gulf Basin accounts for more than half of the onshore domestic liquids production growth due to a comparatively large amount of liquids coming from both oil and gas wells compared with the other key production basins. The Permian Basin in West Texas, which includes plays such as Spraberry, Bonespring, and Wolfcamp, is a third key growth area. EIA estimates that crude oil production from the Permian Basin reached 1.2 million bbl/d in December 2012. Permian Basin production is projected to increase to 1.4 million bbl/d in December 2014. Although average initial liquids production volumes from Permian wells have risen, the production forecast for this basin has been scaled back due to lower rig efficiency across all wells being drilled in the region.
These continuing increases in crude oil production are having profound effects on U.S. petroleum balances. A large portion of tight oil production consists of light, sweet crude oil. As previously noted by EIA, growing production has led to reduced imports of light, sweet crude oil on the U.S. Gulf Coast, the leading U.S. refining center. Without sufficient pipeline capacity to move all of the growing midcontinent production to the Gulf Coast, prices of these crudes, such as West Texas Intermediate (WTI), have declined compared to coastal grades such as Louisiana Light Sweet (LLS), reflecting the increased cost of moving the crude using marginal modes of transportation such as rail, barge, and truck. The persistent discounts have spurred many infrastructure changes, including the May 2012 reversal of the Seaway Pipeline, which runs between Cushing, Oklahoma and Houston, Texas. The availability of domestic light crude to U.S. Gulf Coast refineries is expected to continue increasing as pipeline expansions allow more crude oil to move to the U.S. Gulf Coast, including an expansion of the Seaway Pipeline expected to be completed later this month. Growing production is also encouraging crude oil movements to the East and West coasts via rail.
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