Implications of the US becoming the largest energy producer

The United States that surpassed Saudi Arabia in oil production has now beaten Russia in oil and gas production, thanks to the fields falling in the category of shale.

According to a report released by BP on Wednesday, U.S. oil production rose to a record last year, gaining 1.6 million barrels a day. Gas output also climbed, putting the United States ahead of Russia as a producer of the hydrocarbons combined.

The data confirming emergence of the U.S. as the top driller also endorses a trend that has helped the largest economy of the world reduce imports, caused a slump in global energy prices and shifted the foreign policy priorities of the country.

The world is witnessing a changing of the guard of global energy suppliers and the implications of the shale revolution in the U.S. are profound, this was stated Spencer Dale, Chief Economist of BP.

The other major shift BP report shows is that energy demand in China is growing at the slowest pace since the Asian financial crisis of the late 1990s as the economy slows and the country tries to reduce its reliance on heavy industry.

The boom in oil and gas production in the U.S. has started to change the domestic economy profoundly. Cheap fuel has seen manufacturing return to the U.S. as the country produced about 90 percent of the energy it consumed last year.

Last year, energy imports by the U.S. equaled one percent of GDP, of the country. In 2007, prior to the commencement of the financial crisis, energy imports by the U.S. accounted for about half of the current account deficit of 5 percent of GDP.

Shale drillers from Exxon-Mobil to Chesapeake Energy have spent about US$120 billion last year in the U.S., more than double the amount five years earlier. The surge in output and a slowdown in global demand have pushed crude oil prices down about 40 percent in the recent past.

The lower prices will force some producers to shut in “frothy activity” at some shale fields in the U.S. but most output can work even at current prices. The number of rigs drilling in shale fields are down by half from an October 2014 peak and may stabilize by the end of the summer, says BP Report.

The shale revolution hasn’t run out of steam in the U.S. as the country increased oil output last year, helping it to overtake Saudi Arabia as a crude producer. This was the first time a country has raised production by at least one million barrels a day for three consecutive years.

Among other producers outside the Organization of Petroleum Exporting Countries (OPEC), Canada and Brazil also reported record production last year, prompting OPEC’s policy shift of ditching price support for defending market share.

On the demand side, countries outside the Organization of Economic Cooperation and Development (OECD) accounted for all of the net growth in global consumption of 0.8 million barrels a day, or 0.8 percent, last year. Chinese consumption growth, though slower, still jumped 390,000 barrels a day, the biggest increase in the world.

Tail Piece: Having achieved self sufficiency in energy products is likely to shift the U.S. focus away from Middle East and MENA to South China Sea. This may not be a good omen for the region as some other countries may try to declare themselves regional super powers, the mostly likely being Iran and India.