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US to surpass Saudi as #1 oil producer; mid-market companies lead the way

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US to surpass Saudi as #1 oil producer; mid-market companies lead the way

The impact of the US shale “revolution” has people all around the world scratching their heads – over what it means:

Is North America really on the road to self-sufficiency? Of oil, of gas, or of all fuels? And increasingly, people wonder about the implications for their own regions: Are there similar resources? What would it take to get at them?

By the numbers, this already IS a big development. Last year, the US witnessed the world’s largest increase in oil as well as gas production. Not only did oil production expand faster than in any other country, last year also saw the biggest oil production increase in the history of the US – a country, mind you, which has produced oil since 1859.

So far this year, production has grown even stronger.

The reason is tight oil - oil generated with the same technologies that gave us shale gas.


US production last year grew by over 1 million barrels per day, 80% of which came from North Dakota and Texas, currently home to the country’s most prolific tight oil formations. North Dakota surpassed Alaska to become the second largest producing state and in Texas, the number one, output has doubled over the past five years.

Meanwhile, the US is well on its way to replace Saudi Arabia as the world’s largest oil producer – the switch may take place as early as next year.

How did this happen?

Parts of the story are well known:

-The existence of a massive resource base.

-A decade of high and rising prices for both oil and gas.

-Most importantly, a competitive environment, allowing entrepreneurs and their companies to take a gamble to connect the two.

Everyone can invest in oil and gas in the US or Canada – and many did. It was actually mostly small or medium sized firms which tried to develop the technologies to make it possible to connect high prices and known shale resources – first for gas, and then for oil. Many failed and lost their shirt in the process. A few succeeded. But the big ones, the BP’s or Exxon’s of this world, only came in once the basic technologies (such as horizontal drilling and hydraulic fracturing) had been developed – to buy them, and to apply them elsewhere.


Economists use a big name for this type of development (named, of course, after a fellow economist) and call it a “Schumpeterian” process – otherwise also known as Economics 101: Under market conditions, high prices trigger competition, and competition triggers innovation. There are victims among those agile spirits who move in first, and there is a wave of followers who come in next, catching up with the new technologies and refining them to make them more efficient, until the system turns stable again. These waves of innovation indeed are one of the most fundamental characteristics of functioning market economies.


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