Gas Fracking Spurs Oil Rush

Hydraulic fracturing has made natural gas so plentiful and cheap in the United States that rig operators are opting to drill for oil, a BP economist said in Chicago last night.
In 2011 the United States passed Russia as the world's largest producer of natural gas, said Mark Finley, BP's general manager for global energy markets. But because the U.S. lacks sufficient facilities to liquefy and ship natural gas, most of that gas enters the domestic market.
"If you had a rig in the United States would you be looking for expensive oil or inexpensive gas?" Finley asked about 75 people gathered at the University of Chicago's downtown Gleacher Center. "Maybe I'm just a pointy-headed economist, but I'd be looking for the expensive one."
As a result, in 2011 the United States had the largest increase in oil production of any nation outside of OPEC. And the OPEC nations increased production largely in response to the disruption of Libya's oil industry, and only after the U.S. and the International Energy Agency threatened to release strategic reserves.
"For the first time in several decades, the majority of rigs in the U.S. are drilling for oil," Finley said. "We've seen a massive turnaround in drilling activity. We see that three-quarters of U.S. rigs are now drilling for oil, and we can see that just three years ago, that scenario was completely reversed."
Supply has also surpassed demand for oil, however, in part because of consumer response to high oil prices: "This is just you putting pressure at the pump, by putting the Hummer company out of business and buying Priuses," Finley said.
The U.S. produced 651.3 billion cubic meters of natural gas in 2011, compared to 607 in Russia, the only other nation that comes close, according to BP's Statistical Review of World Energy June 2012. The U.S. is responsible for about half of the worldwide increase in gas production.
Although U.S. industries are preparing to export natural gas to world markets, those developments lag behind gas production.
"The U.S. doesn't have the capacity to export natural gas so it has to be absorbed within the U.S. domestic marketplace."
The U.S. produced 7,841 thousands barrels of oil per day, according to BP's review, about a million barrels per day more than it did five years ago, with the production trend likely to continue. Saudi Arabia, the world leader, produced 11,161 thousand barrels per day in 2011.
Finley's appearance was sponsored by the Energy Policy Institute at Chicago and Young Professionals in Energy.
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