News Column

US Oil Output Is Up, but Production Is Tied to Pipelines

Nov. 23, 2012

Rod Walton

oil output

Pipe dreams must become realities if the U.S. is to regain its place as the world's biggest oil producer in eight years, industry insiders said Wednesday.

U.S. oil output spiked to 6.7 million barrels per day last week, the biggest production average since May 1994, according to the federal Energy Department. Oklahoma's crude oil numbers, meanwhile, are reaching 15-year highs.

Some say this means that the U.S. will overtake Saudi Arabia as the biggest producer by 2020. Others point out that American infrastructure needs to catch up with drilling success.

"The increased production must be complemented with new pipeline infrastructure which is necessary to transport the crude oil from where it is produced to where it is consumed," Bruce Heine, spokesman for Tulsa-based Magellan Midstream Partners LP, said. "After all, pipelines are the safest, most reliable and cost- effective mode of transportation when compared to other alternatives."

Magellan was historically a refined petroleum pipeline and terminal firm, bringing in gasoline, jet fuel and ethanol blending, until 2010. The Tulsa firm is now working on two major Texas pipeline projects, the BridgeTex and reversing the former Longhorn line, due to be completed in the next year or two.

Natural gas infrastructure firm ONEOK Partners LP, another Tulsa- based company, also is jumping into the crude oil business. ONEOK Partners plans to build the 1,300-mile Bakken Crude Express to ship oil from the Bakken Shale to Oklahoma's Cushing hub by 2015.

North Dakota's oil-rich Bakken Shale is one of the nation's primary factors driving dreams of domestic energy independence. The state is averaging more than 600,000 barrels per day in production.

Those kind of outputs helped cut U.S. oil imports by 11 percent so far this year.

Oklahoma Independent Petroleum Association Chairman Bob Sullivan, who heads Tulsa oil firm Sullivan and Co., believes the new boom is sustainable if an economic decline does not reduce consumption and force lower prices. He also warned against governmental and regulatory overreach.

"In short, leave us alone in a reasonable price environment and we will get it done," Sullivan said. "Remember, we don't have to get to zero oil imports, but just to a low enough level where the oil we import can come from friendly countries, and we're not far from achieving that goal."

Oklahoma is no slouch at oil production, ranking in the top five states behind Texas, North Dakota, Alaska and California. The Sooner state's plays, such as the Granite Wash and Mississippi Lime, are attracting big investments from players such as Marathon, Midstates and Apache, among many others.

In fact, the U.S. Energy Information Administration's more recent figures estimated Oklahoma oil production at 7.28 million barrels in August. Those production statistics are the state's best since March 1997, according to EIA data.

The combination of horizontal drilling and hydraulic fracturing, which set off a natural gas revolution in shale plays several years ago, is having the same impact on oil production nationwide. Some industry insiders, however, fret that the White House may try to impede those practices due to environmental worries about water quality issues.

"Our nation has a tremendous opportunity to become energy independent as long as we have a reasonable regulatory environment," Heine said.

President Barack Obama has countered those worries by noting that U.S. oil production has grown annually during his term. Most recently, domestic crude output has risen 11 straight weeks, according to federal reports.

Oklahoma's Monthly Oil Production Over 20 years

August 2012: 7.28 million barrels

August 2011: 6.26 million barrels

August 2007: 5.8 million barrels

August 2002: 5.61 million barrels

August 1997: 6.94 million barrels

August 1992: 8.6 million barrels

Source: U.S. Energy Information Administration



Source: (C) 2012 Tulsa World


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