Last month marked the 40th anniversary of a crucial event in American business history. Gasoline prices increased by 40 percent and triggered nationwide fuel shortages, crippling the economy. An odd-even rationing system was imposed, and long lines at service stations were common.
What occurred was the beginning of the Arab oil embargo that caused oil prices to quadruple by 1974. The embargo was created to punish the United States for assisting Israel following a surprise attack on that nation by Syria and Egypt in October 1973.
Ironically, during the week of the anniversary, two significant events occurred. Most important, the United States surpassed Saudi Arabia as the world’s leading producer of oil and gas, according to the respected international energy consulting firm PIRA. And, secondly, China replaced this nation as the largest importer of crude oil.
As the resurgence of oil and gas production – defined as crude oil, condensate, natural gas liquids, and biofuels – has occurred, this has brought changes in the world’s oil diplomacy. In particular, the U.S. now plays a stronger hand in relations with Saudi Arabia, the leading Organization of Petroleum Exporting Countries (OPEC) producer.
What brought about the spike in production within the past several years? Simply put, it has been caused by the shale revolution – the increased output from shale deposits centered primarily in Eagle Ford and the Permian Basin in Texas and the Bakken-Three Forks in North Dakota.
As a result of the exploitation of shale deposits, the supply of oil has risen dramatically. Domestic output grew by one million barrels a day in 2012 and is expected to increase by the same amount in 2013.
Some energy experts contend the boom in production is just the beginning. They believe a combination of hydraulic fracturing (fracking) and horizontal drilling will allow energy firms to reach deposits locked away in shale and other rock layers that have previously been too difficult to exploit.
Growth in production of oil and gas in the United States is welcome news. It is an important step in the long march to energy self-sufficiency. Moreover, increased output should compensate for disruptions in OPEC production that can be expected to occur from time to time.
Wayne Curtis, Ph.D., is a former superintendent of Alabama banks and Troy University business school dean. He is retired from the board of directors of First United Security Bank. Email him at wccurtis39@gmail.com.
