U.S. Oil Reserves Hit 38-Year High

We’re swimming in oil and gas.

U.S. oil and natural gas reserves soared to new heights in 2013, unleashed by unconventional drilling methods that extracted more shale oil and gas than analysts previously expected, according to an Energy Information Administration announcement Wednesday. The increase has helped force oil prices to their lowest point in four years.

Oil production last year was at its highest in 31 years, the EIA said, driven by controversial hydraulic fracturing – or fracking – and horizontal drilling methods that have opened huge oil and gas deposits in the Northeast, Mid-Atlantic, Midwest and Southwest.

As a result of fracking and horizontal drilling, U.S. “proved” reserves of crude oil and condensate – or oil and condensate, a type of ultralight oil, that can be recovered under existing economic conditions and with current technology – surpassed 36 billion barrels last year for the first time since 1975, the EIA said.

North Dakota’s oil and condensate reserves alone exceeded those in the federally held sections of the Gulf of Mexico, and ranked second only to reserves in Texas.

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Overall, the rise in proved reserves of U.S. oil to 36.6 billion barrels, up 9.3 percent over 2012, marked the fifth straight annual increase in reserves.

“We know there is oil,” Fadel Gheit, an analyst at Oppenheimer & Co., told Bloomberg. “We know it will exceed even the most optimistic forecasts. That’s the huge leap forward. You’re talking about potentially a 50 percent increase in proved reserves in the next three years.”

Natural gas reserves also saw a sharp spike, jumping by more than 10 percent to a record 354 trillion cubic feet and reversing a sharp decline that unsettled some analysts in 2012. The expansion was fueled by exploration and production of the Marcellus Shale in Pennsylvania and West Virginia, which together accounted for 70 percent of the increase in gas reserves.

Pennsylvania alone saw its gas reserves leap by 13.5 trillion cubic feet – the largest increase in the country.

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The U.S. proved oil reserves still amount to just a fraction of the reserves of the world’s petroleum powers. Venezuela held the most oil reserves at 298.3 billion barrels last year, Bloomberg said, citing a report by the BP Statistical Review of World Energy. Saudi Arabia had 265.9 billion barrels, and Canada 174.3 billion.

Nevertheless, U.S. oil and gas production, aided by a sluggish global economy and increasingly fuel-efficient motor vehicles, has been enough to drive oil prices down significantly.

The U.S. crude oil benchmark, a type of oil known as West Texas Intermediate, has fallen by 38 percent since June, forcing smaller energy companies to curtail investment and energy development.

Brent crude, the benchmark for global oil and U.S. gasoline prices, also has plummeted, from a spot price of more than $115 in June to about $69 Wednesday – its lowest price in four years.

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The price drop has shaken OPEC nations – notably Venezuela and Nigeria – as well as Russia, countries that not only heavily rely on oil export revenue to fund government coffers, but whose oil sectors are also challenged by terrorism, corruption, mismanagement, aging infrastructure and, in the case of Russia, international sanctions. Such inefficiencies together drive up countries’ break-even price for oil production.

Smaller U.S. oil and gas producers, however, are also feeling the squeeze. While energy giants such as Exxon and Chevron have said they can weather prices as low as $40 a barrel, small fracking and horizontal drilling companies – facing high production costs and heavy loans – may soon be forced from the market.