Oil production is booming — but for how long?

On January 27, 2012 — No comments

Lately, President Obama has been talking up the frenzy of domestic oil drilling under his watch. “Right now,” the president said in his State of the Union Address on Tuesday, “American oil production is the highest it’s been in eight years.” Technically, that’s true. But it’s worth taking a longer view. Since 1970, U.S. oil production has actually been in severe decline — and the recent boom is nowhere near enough to reverse it.

Economist James Hamilton offers some historical perspective in this new NBER paper. Thanks to new shale oil drilling in North Dakota and offshore production in Alaska and the Gulf of Mexico, U.S. production has picked up recently and is at about 6 million barrels of oil per day. But that’s still way down from 1970, when production peaked at 10 million barrels per day.

The United States has historically been able to increase oil production by finding new areas to drill. First there were Pennsylvania and New York in the 1850s and ’60s, then Ohio, then West Virginia, then big plays in Texas, the Gulf of Mexico and Alaska, and so on. Eventually, however, production from all those locations peaked and went into decline. Companies have now moved on to North Dakota and deepwater exploration.

Right now, North Dakota is the only state setting all-time records for production — in the wake of new fracking techniques for recovering oil from the Bakken shale formation. But while that development is hugely important for North Dakota, it’s modest in the larger scheme of things.

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