How the US won the war against OPEC

Jay Lehr and Tom Harris:

American innovation has delivered a conclusive victory in one of the most significant economic battles of our time: the war against international oil price gouging. For much of the past 45 years, just a hint or rumor of the Organization of Petroleum Exporting Countries cutting back oil production was sufficient to send oil prices soaring and U.S. consumers searching for cover.

OPEC's power was once so strong that then-President Jimmy Carter proposed gasoline rationing in the late 1970s. Middle Eastern oil producers could hold the U.S. economy hostage by threatening production cuts in response to American foreign policy decisions. America and the world monitored every OPEC meeting with bated breath. From 1970 to 2008, U.S. oil production fell by nearly 50%. As a result, we became even more dependent on and vulnerable to OPEC production decisions.

But those days are over, and good riddance.

The situation began to change in 2008, when advances in directional drilling and hydraulic fracturing, commonly called "fracking," technologies unlocked oil and natural gas resources that had been too difficult and too expensive to recover. After a decade of increasing production, U.S. energy producers in 2018 finally topped our previous record production that occurred in 1970.

Most of the production increases during the past decade occurred on private and state-owned lands, as the Obama administration actively stifled energy production on federal lands. The Trump administration, however, has undone many of the Obama-era restrictions, significantly adding to the increase in American oil production. Final data from 2018 will likely show a 20% increase in oil production compared to 2016, the last year of the Obama administration.

And the news keeps getting better. In late 2018, the U.S. Geological Survey, still one of our most trusted federal science agencies, reported that the huge Permian Basin oil play in Texas and New Mexico contains twice as much petroleum as the agency's largest previous assessment. The Permian is now believed to be the center of the oil and natural gas extraction world.
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With a strong assist from Permian Basin production, America during the final week of November became a net oil exporter for the first time since the federal government began keeping records 75 years ago. America's growing oil production — coupled with America's prodigious natural gas and coal exports — is fulfilling President Donald Trump's pledge to transform the nation into the world's dominant energy power.

Further, Acting Secretary of the U.S. Environmental Protection Agency Andrew Wheeler recently announced a reversal of stifling regulations on the oil and gas industry installed by the Obama administration. Wheeler said "removing these excessive regulatory costs will generate roughly $484 million in cost savings and support increased domestic energy production." The new rules also empower the states to work more closely with the federal government in regulating the oil industry.
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The biggest mistake OPEC made in response to the shale boom was to try to kill it with predatory pricing.  They lifted their restrictions on production and drove the [rice down below the cost of most OPEC countries in an attempt to drive the shale companies out of busines.

That backfired big time as the shale producers got more efficient an innovative driving their own cost down to below the price that most OPEC countries need to break even.  The shale producers survived and then prospered as they began extracting even more oil from the various formations under the Permian Basin.

Their biggest concern now is getting the infrastructure finished to get even more oil to market.  It will become even harder for OPEC to manipulate the market.  If the US switched all of its refining capacity to the light crude being produced from the shale wells it would not need any imported oil.

Relieving the unnecessary regulatory burden imposed by Obama has also made the US producers more competitive.  I suspect that Obama imposed some of those regulations to try to make less efficient alternative energy look more competitive.