Some left-wing columnists are suggesting that opening up new areas to drilling is unnecessary, because we are already having a hydrocarbon boom in the US, which is "reversing a decades long decline in US oil production." On closer examination, the hydrocarbon boom is much less dramatic than it sounds. I've plotted North American crude oil production from 2002 to 2011. This captures falling Mexican production due to the collapse of the super giant Cantarell field, and also includes the impact of the Canadian tar sands.
US crude oil production is doing well. Output for December 2011 is the highest since May 2002. However much of the shale oil boom is simply offsetting declines in production elsewhere. Mexico lost 1.6 million barrels/day of production from the Cantarell field during the period. They replaced 1 million barrels/day by developing other fields, leaving their production down by 600,000 barrels/day.
My second chart looks at the major changes in North American oil supply and demand from 2007 to 2011. This helps to put the US shale oil boom in context. It shows the impact of different factors in barrels per day. Thanks to fracking, US oil production is up. Fracking has also boosted US natural gas production, which means than more natural gas liquids are being produced. Some natural gas liquids can be blended into gasoline, some are sold as propane, and others are used for plastics production.
There has been much discussion in the media about the shale oil and shale gas booms. The growth of the Canadian tar sands has also received a lot of coverage. The fall in Mexican production due to the depletion of Cantarell has received much less attention, even though it has cancelled out about half of the oil production growth elsewhere in North America. Another thing that is easy to overlook is the contribution made by surging ethanol output, which added about 800,000 barrels/day to gasoline supplies.
What the mainstream media has missed is the sharp fall in demand for oil products in North America since 2007. Demand is down about 10%, and this factor outweighs everything else. This is the main reason why US fuel imports are dropping and refineries are shutting down. Much of this is due to the great recession which started in 2008, throwing millions out of work and reducing the need for transportation. Some of it is due to fuel switching to natural gas, and some is due to ongoing efforts to improve the efficiency of cars, trucks and planes.
What happens when the economy recovers?
Oil demand fell by 2.3 million barrels/day in North America when the recession hit. OPEC allegedly has 2.8 million barrels/day of usable spare capacity. A rapid US economic recovery would stress global oil supplies. If Europe economies recovered as well oil supplies would be stretched to the limit. There may very well not be enough oil production capacity to fuel simultaneous economic recoveries in the US and Europe.
Returning US and European demand to 2007 levels would require an additional 3.2 million barrels/day of oil. That can't happen, because there isn't enough spare oil production capacity. Full economic recovery will depend on efficiency improvements in oil use.
There is debate over how much of OPEC's claimed spare capacity is actually real. There is no doubt that much of it consists of undesirable, hard to process oils. However, any economic recovery is highly likely to be derailed by a spike in oil prices.
Things get much worse if we end up in a war with Iran. Iran exports a little over 2 million barrels/day, so most of the usable OPEC spare capacity would disappear overnight. We can either have an economic recovery or a prolonged conflict with Iran, but not both.
Paul Krugman pointed out in a recent column that employment in oil and gas extraction has only increased by 70,000 jobs since the middle of the last decade. He went on to claim that drill, baby, drill wasn't a serious jobs program.
However, if the global economy runs up against the limits of oil production capacity, job losses are likely to be in the millions. From 2007 to 2009 US employment fell by 6.2 million while US oil demand declined by 1.9 million barrels/day. This suggests that a shortfall of 1 million barrels/day in US supplies could cost 3.3 million jobs.
On the other hand, simply dividing current US employment of 140 million by current US oil demand yields an estimate of 7.5 million jobs lost per 1 million barrels/day shortfall.
Either way, it is a big impact.
(Data from US Energy Information Administration and IEA Oil Market report)