ANALYSIS: BP report: U.S. takes lead over Russia in oil and gas production

By Tyson Fisher, Land Line staff writer | Thursday, June 11, 2015

The United States has surpassed Russia as the world’s leader of oil and gas, according to the BP Statistical Review of World Energy. The report also reveals several other facts related to oil and gas for 2014.

According to BP’s report, the U.S. recorded the largest increase in oil production worldwide in 2014. In fact, the U.S. is the first country ever to have an average annual increase of at least 1 million barrels per day for three consecutive years. A major factor in U.S. oil production is the boom in shale oil. Before passing Russia as the world’s leader in oil and gas production, the U.S. jumped ahead of Saudi Arabia as the world’s largest oil producer.

According to Tom Kloza, co-founder of Oil Price Information Service, the BP report likely refers to petroleum liquid numbers. Saudi Arabia and Russia still take the lead in crude oil production. Barring a crisis in oil-producing countries such as Iraq and Iran that could stifle production, the U.S. will remain close behind. Regardless, the U.S. is the closest it has been to Saudi Arabia in the past couple decades.

Despite the number of shale rigs being cut by more than half, production is still steady albeit slower than the initial boom. Kloza told Land Line that he predicts shale production will increase once oil hits $70 a barrel and decrease if it nears $50. Currently, WTI oil has been floating around the $60 area.

What does this mean for gas and diesel prices? Kloza remains optimistic.

“What you’re seeing right now (for prices), it’s pretty close to what you’re going to see for diesel,” Kloza predicted in terms of future prices.

Kloza sees diesel prices remaining steady for the next 60-90 days, before the holiday season comes around. Kloza is much more optimistic about gasoline prices, and he can see $2 prices being common. Unfortunately, diesel prices are more difficult to assess, considering how heavily regulated it is.

Will we go back to $4 diesel prices, as the U.S. saw for several months last year?

“We are not going back to that,” Kloza told Land Line. “It’s hard to predict out more than 18 months, but I would be really surprised if anything like that happens before 2017.”

That does not mean it will happen in 2017 either, Kloza explained. If diesel prices go up dramatically, Kloza does not think it will be because of oil. Rather, increased prices would be the result of carbon footprint awareness and the resulting taxes and regulations.

As supply dramatically increased worldwide, demand sharply decreased. Global energy consumption went up by only 0.9 percent in 2014, the slowest growth rate since the late 1990s, not counting immediately after the financial crisis. Consumption growth reached 2.0 percent in 2013 and has a 10-year average of 2.1 percent. China shifting its economy away from industries that are energy intensive played a large role in 2014’s slow growth.

The combination of record-high supply and record-low demand led to lower oil prices towards the end of 2014. Countries in the Organization of the Petroleum Exporting Countries maintained production to protect their share of the market with non-OPEC productions at record highs.

Brent crude, the international benchmark, averaged $98.95 per barrel in 2014, down nearly $10 when compared with 2013. It was the first time since 2010 it averaged below $100. The spread between WTI, the U.S. benchmark, and Brent was $5.66. On Jan. 13, 2014, the spread was nearly $15 and ended at $4.27 on December 29. So far this year, the largest differential was $12.82 on Feb. 27 and reached as low as 21 cents on Jan. 14. At press time, Brent was priced at $65.16 more than $30 below 2014’s average.

Renewable energy was the fastest-growing form of energy for 2014, according to BP’s report. Accounting for one-third of the world’s total increase in energy use, renewables provided around 3 percent of the world’s energy. Conversely, natural gas consumption growth was slow due to a mild winter in Europe, resulting in less demand for gas for heating purposes.

Oil remains the world’s leading fuel at 32.6 percent of global energy consumption. However, oil lost part of its market share for the 15th consecutive year.

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