Texas oil - an amazing success story

‘Saudi Texas’ produces almost one-third of America’s crude oil, and as a separate country would rank #13 in the world

By Mark J. Perry

The Energy Information Administration released new data today for US oil production by state for the month of January, and its report showed that “Saudi Texas” produced an average of 2.26 million barrels per day (bpd) in January, the highest average daily output in the state in any month since May 1986, almost 27 years ago (see chart above). Texas oil production increased by 30% in January from a year earlier, and by 75% from two years ago.

Amazingly, oil production in the Lone Star State has more than doubled in only three years, from 1.10 million bpd in January 2010 to 2.26 million bpd in January 2013, which has to be one of the most significant increases in oil output ever recorded in the history of the US over such a short period. The exponential increase in Texas oil output over just the last three years has completely reversed the previous 23-year decline in the state’s oil production that took place from 1986 to 2009. Just a little more than three years ago, Texas was producing less than 20% of America’s domestic oil. The recent gusher of unconventional oil being produced in the Eagle Ford Shale area of Texas, thanks to breakthrough drilling technologies, has pushed the Lone Star State’s share of domestic crude oil above 30% in each of the last ten months, and up to 32.2% in January.

Further, Texas oil output in January at an average of 2.26 million bpd was 25.7% greater than the US oil imports that month from all of the Persian Gulf countries (Saudi Arabia, Iraq, Kuwait and Qatar) combined at 1.79 million bpd. In fact, Texas oil output has exceeded Persian Gulf imports in each of the last five months starting in September, and that has never happened before in the history of the monthly EIA data for Persian Gulf imports back to January 1993.

Remarkably, oil output has increased so significantly in Texas in recent years, that if it was considered as a separate country, Texas would have been the 13th largest oil-producing nation in the world for crude oil output in November (most recent month available forinternational oil production data). At the current rate of increase in oil output, Texas is on pace to possibly produce 2.74 million bpd by the end of this year, which could move the state all the way up to No. 9 in the world for oil output by December.

The exponential increase in Texas oil production is bringing jobs and economic prosperity to the state, here are a few examples:

1. During 2012, payrolls in the state of Texas increased by 260,800, which was a 2.45% increase in the state’s employment level from 2011, and almost 50% greater than the national increase in payroll employment of only 1.65% last year. Every business day last year, more than 1,000 new jobs were created in the Lone Star State, and many of those jobs were directly or indirectly related to the state’s booming oil and gas industry.

2. According to an economic impact study released today by the University of Texas San Antonio titled “Economic Impact of the Eagle Ford Shale,” the 20-county South Texas area of Eagle Ford Shale now ranks as the single largest oil and gas development in the world based on the planned capital expenditures of $28 billion this year.  For 2012, the Eagle Ford Shale play will have a $61 billion impact on the Texas economy, supporting more than 116,000 full-time jobs, generating more than $2 billion in local and state tax revenues, and contributing $28.4 billion in Gross Regional Product to the Texas state economy. To put $28.4 billion of regional economic activity into perspective, that amount of economic output would place the Eagle Ford Shale area ahead of the entire Gross State Product of Vermont in 2011 of $25.9 billion.  As a separate state, the 20-county Eagle Ford Shale would rank as America’s 50th largest state economy, ahead of Vermont!

It’s an amazing success story - just a few years ago, there was no oil or gas activity in the Eagle Ford Shale area of Texas, and now the explosion of oil and gas production over just the last few years has created enough new economic activity and jobs in South Texas that it’s like adding another state economy the size of Vermont to the US economy.

To paraphrase Forbes contributor David Blackmon, God Bless “Saudi Texas,” and God Bless the Eagle Ford Shale, America’s new “state.”