We are seeing a major change in oil production over the last few years and these changes have vastly effected the playing field and who’s economy is being affected.  In 2008, the rise in oil prices was accompanied by the belief that we were facing a worldwide scarcity of oil and there was nothing that could be done to stop it from happening.  In the U.S. this belief started with the memory of the long lines of vehicles waiting at the gas stations back in the 1970s. When this occurred, and along with the accompanying uproar, the United States went from being a minor importer of oil to a major importer.

The same could be said about U.S. production of natural gas, that too had declined as oil production had done likewise.  The U.S was forced to import natural gas from foreign countries like Mexico, Russia, and Australia and spending billions to do so.  It was during this time that we saw the start of a huge trade deficit solely due to energy needs.  We were slowly going down the economic crapper and the end result was looking really shitty.

But that is not at all how things are turning out.  Technology is making the difference.  The production of oil and natural gas has been changed by the rapid expansion of shale gas production.  Back in 2005, we were importing around 60% of our total oil consumption.  Oil experts expect that level to fall to 32% by 2014 and keep falling, after that.  The same can be said about natural gas.  We use to get 1%  to 2% of our natural gas from shale formations, now it is over 40%.  The one issue with the natural gas is that much of the natural gas is being burned off, at the well site, because we do not have the means to collect it.  The U.S. has now reversed the trend and has gone from an importer of natural gas, to a major exporter.

This change is due to increased oil production throughout the U.S. over the last few years.  But, by far , the biggest part of this increase in oil production is due to the finding of huge oil reserves, such as the “Bakken Formation” and “Three Forks Formation” located in western North Dakota and Eastern Montana.  With the use of hydraulic fracturing methods, oil producers have been able to extract huge amounts of oil and natural gas from vast shale deposits.  This is commonly referred to as “tight oil.”

Tight oil is redrawing the map of North American oil.  At the beginning of this year, North Dakota overtook California as the nation’s third largest oil-producing state.  It didn’t stop there.  It just overtook Alaska, to become No. 2 after Texas.  Tight oil could reach more than four million barrels per day by 2020.  Until recent events, the idea of the U.S. ever becoming free of dependence on foreign oil was unrealistic.  But with oil demand declining, increased output, and an increase working relationship with Canada, the U.S. is definitely, less dependent.  Also, output of Canadian oil sands have tripled since 2000.

The picture of oil production and oil consumption is drastically changing due to world events such as the fall of Libia, Brazil is developing huge offshore reserves, and China already imports more oil from the Persian Gulf than the United States does.

This increase in domestic oil production represents a growing recognition of what this means for the overall  U.S. economy.  The major arguments for domestic oil and gas production has been about energy security and balance of payments.  But now this increase in domestic supply means that fewer dollars are going overseas and more of them are staying at home, going into investment and job creation.  This has greatly impacted employment in this country, even in states like North Dakota, where,in previous years, you witnessed a steady decline in population.  Lower energy costs are revitalizing the overall economy of this country.

America’s new energy story is evolving constantly, and none of us, in those oil production areas of the U.S., have any idea of what is in store for us, in the future.  We are currently reaping the benefits of greater oil and natural gas production, but at what cost?  No one can say what the long-term effects of hydraulic fracturing will have on the ecology.  Are we trading economic bliss for now for the destruction of our natural resources, in the future?

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