Earlier this month, the United States Energy Information Administration (EIA) made an announcement that demonstrates the profound nature of the rise in oil and gas production over the last decade: The agency announced that “proved reserves of U.S. oil and natural gas in 2010 rose by the highest amounts ever recorded” since EIA began publishing proved reserves estimates in 1977.
This record jump is stunning news, especially considering a general trend of decreasing production between 1980 and 2000. That trend is now being reversed. Proved reserves of crude oil are now at their highest levels since 1991, while proved reserves of natural gas are at their highest levels since EIA began measuring.
“Proved reserves” refer to estimates of oil and natural gas that may reasonably be recovered from known reservoirs in future years under existing economic and operating conditions (the concept is regulated by the Securities and Exchange Commission).
These estimates change from year to year according to updated information, such as discoveries of new fields or reassessments of the potential of old ones. Of course, prices and technology improvements play important roles in determining what’s reasonably recoverable as well.
EIA makes clear what accounts for this record growth in reserve estimates: “The expanding application of horizontal drilling and hydraulic fracturing in shale and other ‘tight’ (very low permeability) formations, the same technologies that spurred substantial gains in natural gas proved reserves in recent years, played a key role.”
Rising oil prices played a part, too, in providing incentives for producers to explore and develop additional resources. In fact, this reflects a natural self-correction when markets are allowed to work; the new resources are developed for consumers in response to price signals.
In this case, both technology and the market’s price signals combined to boost proved reserves of crude oil by more than 12 percent, and natural gas by nearly as much.
Keep in mind those jumps come on the heels of impressive reserves estimates for 2009 that were announced last year. The record 2.9 billion barrel increase in crude oil proved reserves for 2010 (to 25.2 billion barrels) is fully 50 percent higher than the increase from 2008 to 2009, which was itself a record. That’s a performance worthy of Olympians Usain Bolt and Michael Phelps.
The engineers and entrepreneurs developing our nation’s oil and natural gas resources are doing something truly extraordinary. Their achievement may not come with an elaborate opening ceremony or a turn on the medal stand, but it’s worth celebrating all the same, especially when you consider the economic benefits – thousands of jobs, affordable and abundant energy supplies and new revenues for government through taxes and royalties. Those are achievements all Americans can applaud and share.