All along the highway that leads into this city in West Texas, the rows of black pump jacks seem endless, bobbing up and down as they pull crude oil from beneath the parched scrub desert.
The pump jacks have long been here, in good times and bad, a symbol of this city’s long status as the heart of America’s petroleum industry. Even when U.S. oil production was dropping and many feared the Permian Basin, which feeds Midland’s oil economy, was all but exhausted, the pump jacks continued their work – even when the result seemed hardly worth the effort.
Now, their up and down motion seems all but unstoppable, a symbol of an energy revolution that seems likely to transform the globe.
“Everything has changed,” said Jim Henry, 78, who’s worked in Texas’ oilfields most of his life.
A surge in U.S. oil production has in just a few short years propelled the United States from a country largely dependent on oil imports to one that soon could become the world’s top oil producer. The goal of North American energy self-sufficiency, the holy grail of American politics since the Arab oil boycott of 1973, seems to be within grasp.
The revolution has taken place almost unnoticed – and in a way that few foresaw less than a decade ago, when the emphasis on breaking America’s foreign oil dependence was almost entirely on persuading Americans to drive less, turn the thermostat up in the summer and down in the winter, and open protected areas to oil exploration.
No one, it seemed, foresaw what actually happened – a production revolution that in the past five years has seen the amount of crude oil produced in the United States shoot up 40 percent, after declining every year for the previous 20. The International Energy Agency predicts the United States will overtake Saudi Arabia as the world’s top oil producer by the year 2015. America already has become the largest producer of natural gas.
In October the United States started producing more oil than it imports for the first time since 1995.
The American energy turnaround isn’t expected to stop there.
Citigroup’s head of global commodity research predicts that by the end of the current decade the only foreign oil the U.S. might need will flow from Canada. Other analysts agree the potential is vast.
“New and unanticipated energy abundance is within our reach, and it provides a historic opportunity to solve some of our country’s most difficult economic challenges,” James Jones, a former national security adviser to President Barack Obama, declared at this year’s Deloitte Energy Conference in Washington.
Questions remain about how quickly the U.S. fields will decline and whether the boom can last. The production surge is owed in large part to use of a controversial drilling process known as fracking – hydraulic fracturing – in which high-pressure water and chemicals are pumped underground to break up shale rock and release the oil and gas trapped inside. Environmental groups argue it poses a threat to air and water.
Deep disposal of fracking waste has been linked in some studies to small earthquakes. Four cities in Colorado voted to ban fracking earlier this month. New York and North Carolina don’t permit the technique, and other states are still debating the subject.
The drilling is also under attack from those who fear that the expansion of oil and gas supplies will simply increase the world’s dependence on fossil fuels, speeding global warming and cutting the incentive to find renewable energy alternatives. Cheap natural gas increases the challenge of attracting investment to develop solar and wind energy.
“Those who might have relied on the fact that we would run out of this resource and therefore be forced by lack of available resource to switch to something cleaner, this is not going to happen. Not in my lifetime. Maybe not even in my children’s lifetime,” said Amy Myers Jaffe, executive director for energy and sustainability at the University of California, Davis.
But the benefits of the U.S. fracking bonanza offer powerful arguments in its favor. They include resurgence in American manufacturing and a reshaping of U.S. relationships around the world, where America’s thirst for oil has long been blamed for interventionist policies in the Middle East and elsewhere.
In a sluggish U.S. economy, oil and gas employment surged by 40 percent over the last five years, according to the U.S. Energy Information Administration, adding 162,000 new jobs. That compares with just a 1 percent increase in total private-sector jobs over the same time period.
The surge has also played a role in keeping U.S. gasoline prices under control. While those prices have remained high, many analysts argue that they could have gone much higher, caught between increased Chinese demand and a lower world supply caused by the U.S.-backed sanctions on Iranian oil sales. Without the surge in U.S. production, these analysts argue, oil prices, which are set globally, might have skyrocketed.
President Jimmy Carter wore a cardigan sweater for his first energy speech in 1977 and urged Americans to turn down their thermostats. “We must face the fact that the energy shortage is permanent,” Carter said then.
Now, however, President Obama asserts that the nation has a supply of natural gas that can last for nearly 100 years. His administration in September approved a fourth terminal for exporting America’s natural gas bounty. The federal government keeps upping its estimates of how much crude oil could be drilled in the U.S.
For the first time since 1949, the U.S. sends more of its refined petroleum products such as diesel, heating fuel and gasoline to other nations than it is bringing in.
The boom is returning places like Pennsylvania and Ohio to their historic roles as centers of the oil and gas industry, while production skyrockets in unexpected places like North Dakota. Even in oil-producing states where the fracking boom has not delivered the vast economic benefits that had been hoped for, production is up. Kansas, for example, saw a 5 percent production increase last year, reversing 40 years of decline.
The surge is especially visible in Texas, long the core of the United States oil industry. Twenty-five percent of all drilling rigs in the world are working in Texas, according to the rig count compiled by the oilfield services company Baker Hughes.
Workers fled Midland in the 1980s after the last big bust in the Permian Basin oilfields. Equipment rusted, office buildings emptied and West Texas oil was pronounced dead. Now, Midland is booming, ending last year with the nation’s lowest unemployment rate. Developers want to take advantage by building a 53-story tower, featuring a rooftop bar, luxury hotel and spa, and office space in a town where the county population is 150,000.
It could be the tallest building between Houston and Los Angeles, visible from 30 miles away in the flat desert landscape of West Texas. Local critics say it smacks of Midland trying to be the “Dubai of Texas,” and that the tower would appear like a giant middle finger rising from the plains.
“I have seen a lot of booms and busts but I’ve never seen a boom like this,” said Mary Hardin, who runs a social services organization in Midland. “It’s crazy.”
How far that boom might go is still anybody’s guess. Many states contain rock formations that are ripe for fracking, including California, which once was at the center of the U.S. oil industry and could be so again.
The energy revolution has been a boon to American manufacturing. Dow Chemical CEO Andrew Liveris told Congress this year that America’s natural gas bounty is a once-in-a-generation opportunity, and the resource is “the first indispensable ingredient for everything that is made and consumed in this country.” Natural gas prices in the U.S. are at near record lows, far cheaper than in Europe and Asia.
Natural gas is used for manufacturing and electrical generation, and the cheap price is convincing utilities to switch to it from the more polluting coal.
The German industrial trade group BDI warned last year that America’s cheap natural gas could put European firms at a serious economic disadvantage.
“This is now issue No. 1 for German industry, this fear of loss of competiveness against the United States,” said Pulitzer Prize-winning oil historian, author and analyst Daniel Yergin.
Other countries have their own worries. Saudi Arabian Prince Alwaleed bin Talal wrote an open letter in July to his country’s oil minister, saying that the Saudi economy is vulnerable to the threat of surging U.S. oil. The Organization of Petroleum Exporting Countries, which includes Saudi Arabia, is bracing itself for a drop in U.S. demand. In September, China overtook the U.S. as the world’s largest importer of oil.
America’s energy surge is already allowing it to flex muscles internationally, according to analysts. The U.S. production surge helped the United States persuade European allies, for example, that petroleum sanctions against Iran wouldn’t create a global oil shortage and force price spikes. Those sanctions were in large part responsible for Iran’s more compromising approach in recent talks on its nuclear program.
“Without this increase in U.S. supply,” Yergin said, “these sanctions simply could not have worked as effectively as they have.”
Expanded American energy production also creates issues for Russia, which wields tremendous economic and political power by supplying Europe with natural gas via pipeline. The expansion in U.S. supplies means that countries that had planned to export natural gas to the U.S. are instead selling it to Europe, giving competition to Russia, according to Ken Medlock, senior director of the Center for Energy Studies at Rice University.
The United States isn’t the only country with oil and natural gas locked in shale rock, but it’s the only country currently in a position to take advantage of it, analysts say.
In Europe, the environmental opposition to fracking is deeply held and widespread. Elsewhere, most countries simply don’t have the technology or the infrastructure to exploit deposits that require fracking. America is even helped by its property laws, which allow most landowners to hold onto subsoil mineral rights, giving hopes of cashing in, unlike in many countries where oil and gas activity just means problems without any hope of economic reward.
“This is unique to the United States and North America,” Deutsche Bank energy analyst Paul Sankey said at a recent Bipartisan Policy Center energy forum in Washington. “In my view this revolution will not occur globally except possibly in the next decade and soonest in China.”
Drilling and fracking are expensive, and shale wells tend to decline quickly, so new drilling is constant, according to a Harvard University study. Only the United States, with 60 percent of the world’s supply of drilling rigs, most of which can do the horizontal drilling fracking requires, has the wherewithal to maintain the pace. For comparison, the Harvard study noted, the U.S. completed 45,468 oil and gas wells last year;
the rest of the world outside of Canada completed just 3,921.
“We are the only country in the world where individuals own the property rights down to the center of the Earth on land they sit on,” said Joseph Stanislaw, who helped found the consultancy Cambridge Energy Research Associates. “It’s an economic advantage that doesn’t exist anywhere else.”
No one saw America’s energy revolution coming, including the people who helped make it happen. Floyd Wilson remembers drilling the Fayetteville shale in Arkansas, an area where the wells previously could not even produce 50,000 cubic feet of natural gas in a day. Then he used the kind of fracking and horizontal drilling techniques pioneered by Texas driller George Mitchell, who drew on years of federal research.
“We drilled a couple of wells and one came in at 6 million cubic feet a day,” Wilson said. “It just shocked us.”
Wilson went on to make a major discovery in Texas’ Eagle Ford shale. He took his $60 million investment in Petrohawk Energy, sold the company for $12 billion, and started a new firm.
Analysts and drillers warn, though, against counting on this continuing. There is no guarantee the boom will last and plenty of room for problems.
“There are a lot of risks above ground and below ground, and questions about costs,” Yergin said.
Wilson said he’s noticed many of his fellow operators drilling wells closer and closer together at the major fields in Texas and North Dakota. That makes money quickly and satisfies shareholders. But then the wells start competing with one another for the same oil and decline quickly, he said.
The much touted American energy self-sufficiency is going to be difficult to achieve, he said.
“On paper you can do it,” Wilson said. “But I don’t know.”
The International Energy Agency predicts the U.S. reign as the world’s largest oil supplier will last from 2015 to the early 2030s. But the agency also forecasts that America’s oil production will start its decline in the 2020s as the Texas and North Dakota “sweet spots” run out, though it does not foresee the United States’ dependency on Middle East oil returning.
In Midland, they’ve seen booms go bust before.
“This one they’re saying will last several years because the new technology made drilling more profitable,” said Paul St. Hilaire, executive director of the George W. Bush Childhood Home museum, a modest rambler near Midland’s downtown. “We’ll see.”
Midland driller Henry said the boom will ease as soon as the price of oil drops and makes the $7 million cost of drilling a horizontal fracking well too expensive.
But technological improvements will bring down the drilling cost, he predicted, and the oil will be waiting in the shale rock for the next big boom.
Fracking opened up a new world, he said, and it won’t close any time soon. Henry reckons it’s doubled the amount of oil that drillers can reach.
“It’s like discovering a field as large as the whole United States,” Henry said. “And it’s not just the United States. It’s all over the world.”">