By Leslie Haines

Thanks to advanced technology, surging U.S. oil and gas production is being exported to dozens of countries around the world.

The U.S. oil and gas industry celebrates two landmarks this year that few Americans would have ever expected. Crude oil production from U.S. oil fields has surpassed 10.5 million barrels a day – a number not seen since the 1970s, if ever. This year also marks the 10th anniversary of the shale revolution that started this spectacular rise in oil and gas production.

Today, the U.S. produces more oil per day than Saudi Arabia or Russia… and Texas alone produces more oil each day than several OPEC countries. Exports have been averaging about 1.7 million barrels a day so far this year, but in one week this summer, they set a record of 3 million barrels a day.

The U.S. is also now the No. 1 producer of natural gas in the world, surpassing longtime rival Russia. American production is about 78 billion cubic feet a day, with gas from fields in Pennsylvania being exported to Europe, and exports in the form of liquefied natural gas (LNG) from fields in South Texas to Japan and India. The newest LNG export terminal just began commercial operations on the Chesapeake Bay this summer. Another being built on the Georgia coast near Savannah will start commissioning soon.

“There is no question that the increase in U.S. energy production, both in oil and gas, has increased energy security – not just in the U.S., but globally.”

“The U.S. is becoming a major part of the global system,” said Jamie Webster, senior director for Boston Consulting Group’s Center for Energy Impact. “There is no question that the increase in U.S. energy production, both in oil and gas, has increased energy security – not just in the U.S., but globally.”

America has the oil and gas resources underground, the political will and capital to extract it safely, and the innovative technology to do so. The U.S. Geological Survey estimates the Permian Basin’s Wolfcamp Shale alone could contain 20 billion barrels of oil. The Permian is a huge subsurface geological basin full of oil located in far western Texas. Trouble is, that oil is trapped in very tight, nonporous rock that requires massive fracture stimulation, better known as “fracking,” to unlock its riches.

The benefits of this crude oil and natural gas surge are not just economic, although certainly states like Texas, North Dakota, Colorado, and Pennsylvania have enjoyed lower unemployment rates, high oilfield wages, and increased revenues from the severance taxes they levy at the wellhead.

Just as important are the geopolitical implications, which are far-reaching. For one, our imports of oil from unfriendly nations have declined significantly over the past decade, leaving U.S. diplomats in a much better negotiating position with producing nations such as Mexico, Canada, Saudi Arabia, Russia, Nigeria, and various other OPEC producers.

For another, surging oil and natural gas production gives the president leverage to ink new trade deals with Europe, China, and India – all big energy consumers. In July, Donald Trump held a trade meeting followed by a press conference with Jean-Claude Juncker, president of the European Commission, where Trump touted the sale of more LNG to our European allies, which in turn would make them less hostage to Russian gas supplies.

The U.S. now ships crude oil to 25 countries, and end products such as gasoline and propane to more than 100. The federal government lifted a decades-long ban on oil exports in December 2015. Poland, for example, has just begun importing some U.S. LNG.

The situation is a far cry from the peak-oil groupthink of 2007, when the Association for the Study of Peak Oil and Gas held its annual conference in downtown Houston. There, nearly all the respected experts agreed the U.S. was going to run out of affordable oil to supply our ever-growing demand. One pundit told attendees, “If you’ve ever wanted to visit Australia, you’d better do it now, because in a few years airlines won’t have the fuel to fly such long flights, or those flights will only be affordable to the most elite.”

Today, global energy demand has risen to more than 98 million barrels a day, closing in on 100 million in a few years as the populations of China, India, and other developing nations demand more energy. Thanks to our ability to extract oil and gas from shales, we will be able to produce some of that needed supply.

How did this so-called shale revolution happen?

In 2008, Texas oilman George Mitchell’s firm was acquired by Devon Energy, and that landmark deal married Mitchell’s pioneering fracking ingenuity with Devon’s larger size, capital, and aces in technology. Devon figured out how to drill horizontally in shale formations and then fracture them, cracking open fissures in the tight shale rock so that gas could flow. A few years later, that technology was applied to oil formations as well, and the production surge was on.

Geologists had always known that oil and gas were found in shale rock, but until then, there was no economically viable technology to get the hydrocarbons out.

Several factors converged: new and more advanced drilling technologies, billions of dollars of pipeline construction to move the products to market, and looser federal regulations.

Chalk it up to oil industry tenacity, a wildcatter spirit of trying new technologies on multimillion-dollar wells, and a willingness to risk huge sums of money – after all, even with the very best technology on the planet at an oil company’s disposal, Mother Nature still has the last word, as far as dry holes go. But even that dynamic has changed in the past two decades. It used to be that only one or two wells in 10 were any good – that is to say, commercially economic (if they even found oil or gas), and therefore worth producing instead of shutting in. Today that has changed dramatically: Almost all wells drilled on U.S. soil are now productive and commercially viable. And most of them are fracked.

“It’s like throwing a fastball two miles away and hitting a target the size of a refrigerator.”

Whether in the gas fields of southeastern Ohio or the oil fields of New Mexico, producers can now drill a vertical hole two miles deep (way below the potable water table), make a 90-degree turn, and proceed to drill out from there another two miles horizontally, all while geosteering the drill bit to ensure it keeps turning in a tight band of no more than a couple feet thick. Oilmen say it’s like throwing a fastball two miles away and hitting a target the size of a refrigerator, just as the geologist said you should and the drilling engineer said you would.

From Fracking to Artificial Intelligence

Remote-controlled drilling, big data analytics, fiber optics downhole, injection of nanoparticles, machine learning… Discussions about these concepts have been sweeping the oil patch in the past year or two. Are engineers and roughnecks going to be replaced by 25-year-old software techies? Not exactly, but the industry is increasingly using all the latest tools. It’s not just about big iron anymore.

Drones are used to inspect pipelines, refineries, and gas processing plants, while robots inspect subsea installations in the Gulf of Mexico. Rigs are automated so that fewer people need to be on the rig floor during the drilling process, and the driller sits in an air-conditioned cabin, managing the drill bit and pipe with computers and a joystick. Engineers can remotely monitor a well’s progress in real time from the office, overseeing the drilling of several wells at a time, each in a different location around the world.

Halliburton, one of the largest oilfield-service companies in the world, is marking its 100th anniversary this year. A year ago in August, it unveiled a new alliance with Microsoft “to drive digital transformation” across the oil patch. That’s significant because it was Earle Halliburton who invented fracking, and fracking is what has enabled the shale revolution.

Look at any chart on the website of the Energy Information Administration (EIA), and you’ll see that from 2008 on, U.S. oil and gas production began a steep and continuous upward climb, even as there were some bumps along the way.

U.S. oil production is at an all-time high now, despite the fact that producers suffered through a crippling downturn. Global oil prices plunged in November 2014 from a high of more than $100 a barrel to a low of $26 by February 2016. Through the crisis that persisted from 2015 through 2017, more than 100 oil companies went bankrupt, thousands were laid off, and there was plenty of distress at some oil patch financial sources (banks and private equity firms from Houston to Manhattan).

Producers learned to scramble and innovate. Today, they drill wells faster, deeper, cheaper, and quicker.

But at the same time, producers learned to scramble and innovate. Today, they drill wells faster, deeper, cheaper, and quicker. They’ve reduced their well costs by as much as half. That means they make a better return on a barrel of production at $65 oil than they did when it was more than $100.

Oil prices have since recovered to between $65 and $70 per barrel at press time.

What lies ahead? Oil exports began in December 2015. That month, a tanker departed Corpus Christi loaded with South Texas crude produced by ConocoPhillips, and a second cargo left the port of Houston. The buyer in both cases was global commodity-trading giant Vitol, who received the cargoes in France and then moved the oil by pipeline to two refineries it operates. At the time, experts said the U.S. could likely export 1 million barrels a day – yet by summer 2018, the country was exporting three times that.

That’s one aspect of the shale revolution that continues to surprise to the upside. U.S. oil and gas production consistently scores higher than predicted, and months earlier than was foretold by the sages in Houston and Wall Street. Permian Basin oil output of about 2.5 million barrels a day could easily double, pundits say, to 5.4 million by 2023, a stunning increase not matched by any other oil-producing country. According to research firm IHS Markit, this would entail the drilling of more than 40,000 wells, if one assumes oil stays around $60 per barrel. The firm also assumed expenditures of $308 billion in this time frame.

The near-term challenge is building sufficient infrastructure to handle all this increased production and get it to the coast for export. But companies are responding. For example, ExxonMobil and Plains All American just teamed up to build a new pipeline from the Permian Basin to the Texas coast, with the capacity to move some 1 million barrels a day of crude oil and condensate for exports. It’s one of a handful of new pipeline projects of a similar size that are underway or proposed… All told, pipeline companies Plains All American Pipeline, Epic Midstream, and Phillips 66 have plans to add some 1.8 million barrels per day of combined capacity by late 2019, to take advantage of surging demand.

The port of Corpus Christi is floating a new bond issue to expand its terminal and docking facilities to handle greater amounts of crude and natural gas for export, and to accommodate larger vessels with deeper drafts. A Houston pipeline company, Enterprise Products Partners, has floated the idea of creating an offshore oil port in the deep waters of the Gulf of Mexico to enable the very largest crude carriers to load up on American oil without coming into port.

They survived the oil price crash of 2014 and OPEC’s attempt to manipulate the market. Now, they are producing so much that OPEC has had to recognize the value of shale production.

Of course, any serious dip in oil or gas prices could derail all this progress, at least temporarily. Then too, a trade war between the U.S. and China, one of the main buyers of LNG, could affect the industry as well. Already, pipeline companies are asking Trump for waivers on the tariffs on imported steel. If China were to place a tariff on U.S. crude, the U.S. could be knocked out of that market.

Trade disputes constitute bad news for importers and exporters, said Fatih Birol, head of the International Energy Agency, in June, when releasing an IEA report on global gas industry trends.

Nevertheless, American producers will continue to drill this year and for many years into the future. The U.S. industry has up to 500,000 already-identified locations left to drill, based on their current knowledge of the rock and the technology they can bring to bear. They survived the oil price crash of 2014 and OPEC’s attempt to manipulate the market. Now, they are producing so much that OPEC has had to recognize the value of shale production. The U.S. has a seat at the table.

Leslie Haines is executive editor at large for Hart Energy in Houston, and was editor in chief of its flagship magazine, Oil and Gas Investor, for more than 30 years. In addition to residing in Houston, she has lived in the oil patch cities of Denver; Williston, North Dakota; and Midland, Texas.

Feature photo: Drilling at dusk, an Alta Mesa rig burrows into the Stack play in eastern Kingfisher County, Oklahoma. Photo courtesy: Alta Mesa Resources Inc.