Never doubt the U.S. dollar over the long-term
“OPEC producers never thought the Permian could be the next star world producer,” said René Ortiz of Ecuador, a former secretary-general of the Organization of Petroleum Exporting Countries. “They never thought one field — one, and not a country — could actually be the monster field of their imaginations.”
I was combing through today’s trade data from this morning’s U.S. Department of Commerce’s BEA press release, and was startled to see just how far the United States has progressed in the energy sector. I include a link to the press release for you reference.
All told, domestic oil production increased by two million barrels a day last year, for a record of 11.9 million barrels, making the United States the world’s top producer.
Permian production has quadrupled over the last eight years, in contrast with the decline of most other established oil fields, for several reasons.
Companies found ways to lower exploration and production costs in tapping the Permian’s accommodating shale. New technologies for drilling and hydraulic fracturing helped bring the break-even price for the best wells from over $60 a barrel to as low as $33.
The Permian, as vast as South Dakota, is distinct from other shale fields because of its enormous size, the thickness of its multiple shale layers — some as fat as 1,000 feet — and its proximity to refineries on the Gulf of Mexico. Some shale fields produce too much natural gas, which is worth less than oil. Others have uneven layers of rock difficult to drill through. The Permian is rich in oil, and its shales are relatively easy to tap with today’s rigs.
Today the biggest risk, at least for producers, is that too much output might drive down prices too much and jeopardize their profitability. They could also prompt another round of aggressive actions from OPEC and its new ally, Russia.
Exxon Mobil, Chevron, BP and Shell have begun to heavily invest in the area. With a major acquisition in New Mexico last year, Exxon Mobil became the most active driller in the basin, and projects that it will increase production five-fold by 2025. Also growing rapidly here, Chevron estimates that one in six of every barrels it produces globally will come from the Permian by 2021.
After regaining a foothold in the Permian last year, BP is expected to invest heavily, contributing to a total investment of more than $10 billion by the major oil companies here this year.
There may be ups and down in the value of the US dollar, but the forces supporting it are strong. The global dollar debt markets and the rapidly expanding domestic energy industry are just two factors that come to mind. Just when we think the dollar is toast, we come across more data that confirm the fears of the dollar’s demise are way off the mark. We don’t need to wonder why the United States economy continues to outperform most other developed nations. It’s energy market has quickly become the most vibrant in the world.