Saudi Arabia Loses on Texas, U.S. Oil Gamble

Published August 31, 2016

Approximately 20 months ago, Saudi Arabia bet heavily it could kill America’s oil boom by maintaining high oil-production levels despite falling oil prices.

The UK Telegraph reports the Saudis believed this would allow them to protect their market share while mortally wounding the U.S. oil industry, driven largely by Texas, which produces 37 percent of America’s oil and 28 percent of its natural gas.

Despite the slump in energy prices, oil and gas production in Texas and the United States has continued to rise, due largely to hydraulic fracturing efficiency improvements. Hydraulic fracturing, commonly called “fracking,” and horizontal drilling allow U.S. producers to tap widely dispersed pockets of oil and gas from a single vertical hole.

North America’s oil and gas producers are cutting costs so quickly most can now produce at prices far below those needed by many in the Organization of the Petroleum Exporting Countries to make a profit, causing global inventories of crude oil to remain near all-time-high levels. Inventories are now so well-stocked, record-setting volumes are now being stored off-shore on tankers.

Only Regulations Can Stop Fracking

Texas drillers are doing well in the Permian Basin and are doing much of the heavy lifting for the United States when it comes to oil and gas production, says Isaac Orr, a research fellow for energy and environment policy at The Heartland Institute, which publishes Environment & Climate News.

“The state has a long history of oil and gas production, and the Permian tar sands are some of the best rock around. With advances in horizontal drilling and hydraulic fracturing, oil can still be recovered from wells previously considered dry,” Orr said. “The history is there, the technology is better than it ever has been, and the Lone Star State has the best rock around.”

Orr says perhaps the only thing that can stop fracking in the United States are increased regulations.

“Regulation is definitely an impediment to fracking; it’s death by a thousand cuts,” Orr said.

Texas Holds Trump Cards

Dan Kish, a senior vice president for policy at the Institute for Energy Research, says Texas, being the birthplace of the modern oil and gas industry, holds many trump cards.

“[Texas] has people who know what they’re doing [and who have] a lot of experience working in the fields,” said Kish. “They’re a benefit to the state and to the people of the United States. Texas also has the infrastructure needed to deliver the oil and natural gas to the markets, in contrast to other parts of the country that are afraid to spend money on infrastructure, due to low oil prices.

“Texas, a very resource-rich state, has been a leader in drilling conventional sources of oil and gas for the past 100 years, and now it’s at the forefront of unconventional resource development, with all of the technological breakthroughs in horizontal drilling and hydraulic fracturing,” Kish said.

Kenneth Artz ([email protected]) writes from Dallas, Texas.