- The expansion of US oil production is centered in a handful of states, and in particular two whose gains more than offset declines in two former production leaders.
- For various reasons the West Coast has missed out on this revival, straining infrastructure and creating new vulnerabilities that should be addressed.
On the front page of a recent Wall St. Journal I see that "US Rises To No. 1 Energy Producer." This news builds on a number of recent headlines such as, "US oil production reaches highest level in 24 years." Stories like these aren't as attention-grabbing as they were when this streak began more than a year ago, once shale oil production ramped up dramatically.  What occurred to me this time, however, was how different the current distribution of US oil output is than it was in the late 1980s.
A handful of states still account for the lion's share of US oil production. Then and now, Texas tops the list, exceeding its 1989 output by 37%. At nearly 2.6 million barrels per day (MBD) in the most recent reported month --140% above at its low point in 2007--its share of US oil production had grown to around 35% by June. However, beneath Texas  the list of top oil states has been jumbled in ways few would have anticipated two decades ago.
Alaska, California and Louisiana, the second-, third- and fourth-ranked producers in 1989, then supplied 41% of total US crude oil output. After decades of decline, the same three states now contribute just 17%, excluding production from the federal waters off Louisiana's coast. Meanwhile, thanks to the development of the Bakken shale, North Dakota has jumped from the number  6 spot just five years ago to number two, eclipsing Alaska early in 2012. Traditional mid-tier producers like Colorado, Oklahoma and New Mexico are also contributing to the overall US oil revival. This surge of highly productive drilling in roughly the middle third of the country, on top of a million-plus barrels per day from the Gulf of Mexico --mainly from deepwater rigs--has scrambled existing oil transportation arrangements. |  |
Today's big challenge goes against that grain: moving the growing surplus of oil in the upper plains states to markets on the West, Gulf and East Coasts, increasingly by rail. Much of the turbulence we've seen in the US oil market  in the last two years reflects the delays inherent in realigning and expanding that network to accommodate newly abundant domestic supplies.
Yet on the other side of the Rockies, the picture looks very different. When I was trading crude oil for Texaco's west coast refining system in the late 1980s, balancing the crude oil surplus on the Pacific coast required shipping multiple tankers a month of Alaskan North Slope oil to the Gulf, where production was shrinking, and prompted the construction of a new pipeline to send surplus oil to east Texas over land. After two decades of decline from mature fields, along with moratoria on tapping new offshore fields, imports now make up roughly half of west coast refinery supply, even though regional petroleum demand is essentially back to 1989 levels. It remains unclear whether and when California will allow producers to tap the state's potentially game-changing oil resources in the Monterey shale deposit.
Barring further change, the regional nature of these shifts means that the energy security benefits accompanying the revival of US oil production are a party to which the West Coast has not been invited, or has perhaps declined the invitation. That's significant, because it leaves residents of California, Oregon, Nevada and Washington much more exposed to any disruptions in global oil trade, since the existing US Strategic Petroleum Reserve was never intended to provide coverage west of the Rockies. In this light, the appetite of west coast refiners for trainloads of Bakken and Eagle Ford crude looks strategic, rather than just a temporary response to market conditions.
A different version of this posting was previously published on the website of Pacific Energy Development Corporation.
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Authored by:
Geoffrey Styles
Geoffrey Styles is Managing Director of GSW Strategy Group, LLC, an energy and environmental strategy consulting firm. Since 2002 he has served as a consultant and advisor, helping organizations and executives address systems-level challenges. His industry experience includes 22 years at Texaco Inc., culminating in a senior position on Texaco's leadership team for strategy development, ...
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