I noticed that one of the first items on the new President's list of "to dos" is a variation of the "Drill Baby Drill" approach, which will supposedly bring more crude oil to the World Market and reduce the price of gasoline at the pump. The supply of crude oil is the critical element in the price of gasoline. Good luck with that Mr. President, but as an oilman for the past +45 years, I have a few comments about that concept. It seems your basic approach is to reduce regulations in this country, which have restricted drilling. The idea is that if Federal Land and USA offshore areas are open to oil and gas development, the new drilling, it would put enough new crude oil on the market to reduce the price, and that would reduce price of gasoline at the pump. However, the United States oil production is only a small part of the total worldwide oil producing picture. Let me give an overview of the overall World Market for oil that sets the price of gasoline.
Worldwide oil production was 81,804,000 barrels of oil a day in 2023, and 102,600,000 in 2024. If oil demand continues to increase by that amount during the next three years, in 2027 the production of crude oil would have to increase by over 62,000 barrels a day.
But hey folks! I'm all for reducing regulations on drilling, but for me and most oil and gas exploration professions, that is only one link in reducing the price of gasoline at the pump. Here's why. It's very simple. I don't think the amount of new oil and gas reserves available on Federal Land and offshore areas are enough, which by removing the regulations now in place, can flood the market with new oil. To further complicate things, President Biden has just signed an executive order, which removed a significant amount of federal acreage from oil and gas drilling. However, I agree the United States still has a substantial amount of Federal land and Offshore areas that are undrilled, but with oil demand expected to increase by possible as much as 20% over the next three years, worldwide daily production would have to increase by over 29,000,000 barrels of new oil.
Then, when you factor in the decline of current producing wells, and a high percentage of new USA oil is from horizontal fracing, which has as a large decline the first few years of their life, with some wells declining by as much as 40 to 60%, you would need another 15,000,000 barrels of new oil to replace the declining worldwide oil production.
Oil is a finite resource, which simply means when a barrel of oil is produced there is one barrel less in the ground, and there will be a time in the future when we reach what is known as Peak Oil. Peak Oil is when Worldwide oil production can't increase enough to satisfy demand. If oil demand increases to 120,000,000 barrels a day and worldwide oil production is only 1,08,000,000 barrels, then we have reached Peak Oil. That is when the demand will force a price increase for crude oil.
Fracing Technology that gave the United States the lead in daily worldwide production has two major flaws. The fraced wells decline at a much higher rate than conventional completed well, and they cost a lot more to drill. (Note to editors; Oil and gas professionals spell "frac" without the K,) In addition the increase in production from fraced well has plateaued, because the number of new wells being drilled has dropped.
If you combine the rapid production decline of horizontal drilled fraced wells with the huge drilling and completion costs, you get higher gasoline prices just to try and meet demand. A surplus amount of oil on the market will drive the price of oil down and a shortage will send the price of crude oil up. The price of crude oil is the key to gasoline prices. Then add Worldwide population growth, which was 75,000,000 last year, and the fact that fraced well increases have begun to plateau will all combine to put pressure for a price increase.
With worldwide demand projected to increase along with the difficulty in meeting demand, the projections are the that "Peak Oil" production is either here now or will be a factor in the next several years. When Peak Oil is firmly in place the new energy source will have to come from other sources or backtrack into coal as fuel.
It was in the Carter Administration when the first shock of an oil price increase, hit, and over several decades oil soared to as high as $124/bbl, but the price can drop, and during the first part of the COVID-19 outbreak the future's price crude oil dropped into a negative. Over the past several decades crude oil soared to over $100/barrel several times. After one those booms was over, and oil had dropped down into the $40/bb range I was in Midland, Texas, and I spotted this Bumper Sticker "Lord give me one more Boom, and I promise I won't piss it off."
Oil booms are when the price of crude oil goes to over a $100/barrel and sales of Cadillacs soar. I'm going to predict Peak Oil will come in late 2027, crude oil will top $100/bbl, and gasoline at the pump will hit five dollars a gallon by Labor Day. I believe by the fall of 2027, considering the worldwide economic growth, especially in China and India, will send the demand for crude oil past 120,000,000 barrels of oil/day and that will pass Peak Oil, which will drive the price of crude oil to between $90 and $100 per barrel and the average price for a gallon of gasoline will hit $5.00/gallon