Energy independence: Oil production, demand will set prices
Improved technology and drilling methods have allowed the country's natural gas producers over the past five years to flood the market with record natural gas volumes.
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As a result, natural gas prices plummeted and the industry has all but abandoned areas rich in dry natural gas.
Now producers are targeting oil, leading some industry observers to warn about a similar result.
“Throughout most of our lifetimes, we have been accustomed to look at the United States as a mature oil province,” said Pavel Molchanov, an analyst for Raymond James Equity Capital Markets in Houston. “The fact that we have dramatically turned the corner to where the United States added more supply than any other country over the past three years is a rather remarkable historic fact.”
He said domestic producers likely will recover an additional 1 million barrels per day each year for at least the next three years.
If those figures hold, America's oil imports could drop to one-quarter of the country's oil usage by 2014 and be effectively eliminated by 2020, Molchanov said.
While there are many benefits to American energy independence, there also are potential problems, he said.
“Until the U.S. oil industry figured out how to produce these unconventional resource plays and opened the door to this dramatic surge in domestic production, our general view was that oil prices would have higher highs and higher lows forever,” Molchanov said. “That is no longer true because we can have almost as much production as we want coming out of this country.”
Oil is a global market. There is a certain amount available in the world and there is a certain world demand for oil.
An imbalance in either direction can have a dramatic effect on price.