U.S. fossil fuel production will reach all-time high this year

America’s energy self-sufficiency will be highest since 1990

By Mark J. Perry

The chart above shows annual fossil fuel production in the U.S. from 1975 to 2012 based on data from the Department of Energy (here and here).  Fossil fuel production for 2012 is estimated using actual production from January-June.  Following last year’s record setting level of 60.66 quadrillion BTUs of domestically-produced fossil fuels, the U.S. is on pace this year to produce more than 61 quardrillion BTUs of coal, natural gas and crude oil, which will set a new all-time record for fossil fuels produced in the U.S.

America’s record high production of fossil fuels this year is a direct result of the advanced technologies (hydraulic fracturing and horizontal drilling) that have revolutionized drilling for oil and natural gas, and have allowed us to tap into previously inaccessible underground oceans of domestic oil and gas trapped inside shale rock far below the earth’s surface.  Since 2008 when hydraulic fracturing started unlocking shale resources on a large scale in places like North Dakota and Pennsylvania, domestic oil production has increased by 24% and domestic natural gas production by 20.5%.

What are some of the implications of America’s record-high fossil fuel production this year?  One major consequence of the U.S. shale bonanza is that the U.S. will generate a greater share of its own energy this year than in any year since 1991 (see chart below).

Based on data from the Department of Energy currently available through June, it’s estimated that the U.S. will produce 83.3% of the total energy consumed this year.  In contrast, before the shale revolution started to significantly boost domestic production of crude oil and natural gas, America produced only 70.45% of the total energy consumed in 2007.  In 2012, the U.S. will be more energy self-sufficient than in any year since 1990, when 83.7% of energy consumed in the U.S. was produced domestically.

Bottom Line: It’s hard to overestimate the significant beneficial effects of the shale revolution on the U.S. economy over the last five years.  And the timing of the shale gale couldn’t have been better. Just as the financial crisis, housing bust, and mortgage meltdown were starting to cripple the U.S. economy in 2008 during the onset of the Great Recession, the shale revolution and domestic production of oil gas were just taking off in places like North Dakota, Texas and Pennsylvania.  Along with the rush of new shale oil and gas came a rush of shovel-ready jobs, both direct jobs for drilling, and also thousands of indirect jobs to support the shale revolution in industries throughout the supply chain for oil and gas including drilling equipment, fracking sand, steel tubing, transportation, housing, and retail.

The shale revolution has also brought America’s energy self-sufficiency to a 22-year high, and is saving U.S. consumers more than $100 billion per year from lower natural gas costs.  Additionally, carbon-dioxide emissions in the U.S. this year will fall to the lowest level since 1991 as shale gas has increasingly been replacing coal for electricity generation (see relatedCD post).

Robin West, chairman and CEO of PFC Energy, commented earlier this year that “This shale gale is the energy equivalent of the Berlin Wall coming down. This is a big deal.”  The ongoing energy revolution in American that will bring domestic fossil fuel production to a record high this year is perhaps the brightest spot in an otherwise sluggish economy, and gives us one of the best reasons to be bullish about the American economy.  In addition to the huge energy-driven economic stimulus and thousands of new shovel-ready jobs and energy cost savings for consumers, the shale revolution is also contributing to greater energy self-sufficiency and a sharp reduction in CO2 emissions.  That is a big deal.