Domestic oil production of nearly one million barrels per day (BPD) remains below the monthly record level set before the Covid-19 pandemic caused production to drop. The highest monthly level of oil production was recorded in November 2019 at 13.0 mb/d (source). The highest annual level ever was in 2019, when US production averaged 12.3 million barrels per day.
Current US oil production is 12.1 million barrels per day, while the average for the year to date is 11.9 million barrels per day. This is on track to be the second highest annual oil production in the United States.
Natural gas production has seen a similar decline due to Covid, but production has fully recovered.
Monthly natural gas production reached an all-time high of 3.008 trillion cubic feet in December 2019 (source). Monthly production then fell below 2.7 trillion cubic feet as the pandemic began to affect markets, but production has been steadily rising again.
The previous record for natural gas production in December 2019 was mainly restricted to December 2021, but this year’s average monthly production has exceeded all other years. In fact, the 2021 average monthly production of 2.85 trillion cubic feet surpassed the previous 2019 monthly record of 2.82 trillion cubic feet. However, the monthly average during the first half of 2022 was even higher at 2.89 trillion cubic feet.
I made this point during a recent interview on radio station WBEN outside of Buffalo, New York. The host wondered why – with natural gas production soaring at all – heating bills are expected to rise during the winter season across the Northeast?
That’s because demand for natural gas is at an all-time high. According to BP’s 2022 Statistical Review, global natural gas demand last year reached an all-time high, surpassing the previous record set in 2019 by 3.3%.
There was a time when what happened in the rest of the world didn’t affect the US natural gas markets much. We used up what we produced and imported a little. Since the US market has been essentially isolated from the rest of the world, significant price imbalances may occur. Natural gas prices in Japan and Europe are often several times higher than in the United States
But as natural gas production escalated in the United States, companies began building liquefied natural gas (LNG) terminals. Over the past decade, the United States has become the world’s fastest growing exporter of LNG, and is on track to become the world’s largest LNG exporter this year.
The implication of this is that the global LNG market is now affecting US natural gas prices. This market has been turned upside down by the needs of Europe. Russia is a major supplier of natural gas to Europe, but these gas exports have declined as a result of the Russian invasion of Ukraine.
Thus, Europe is trying to secure supplies of natural gas for the winter. American companies are exporting as much LNG to Europe as possible, and this is affecting American prices in a way that did not exist a decade ago.
That’s a big part of the reason Americans are facing exorbitant heating bills this winter.