How the Permian Basin Became North America's Hottest Oilfield
The U.S. has more than doubled its crude oil output over the last decade. Much of the growth is due to the Permian Basin of West Texas and New Mexico. WSJ traces the hotspot of North America's crude oil boom, with a look at challenges that producers in the region face.
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- [Narrator] This is a map of known sediment basins in the United States. Many of these regions hold deposits of natural gas and crude oil. Now, this map compares how much crude oil each basin holds. Of the many formations scattered across the country, one reigns supreme. - With our new estimates of the Permian Basin, that resource estimate is on par with what it's been estimated in the Middle East. - [Narrator] The first oil well was drilled in the Permian Basin of Texas and New Mexico roughly a century ago, and now the Basin produces more than four million barrels of crude oil on a daily basis. Surging Permian production has helped to make the US the top oil producer in the world. That growth hasn't come without challenges. Let's unravel how this strip of desert propelled America's ascent to crude oil superpower. The Permian Basin's first commercial operations began at Mitchell County in Big Lake, Texas. The region's resources soon proved critical. Data collected in the 20th century show wells in the Permian yielding 10 to 22% of national crude oil production. That oil was key in moments of international conflict. Crude was a key commodity in World War II. Refined fuels stemming from the Gulf Coast powered engines and aided in the manufacture of everything from roads to uniforms and bombs, and during the global oil crisis of 1973, oil from the Permian helped stabilize US markets as OPEC nations cut supply in an embargo. For years, there was steady growth in the region, but following the 1970s energy crisis, oil prices dropped and drilling became far less profitable. Production dwindled. Meanwhile, new extraction methods developed incrementally. Hydraulic fracturing, also known as fracking, was invented in the late 1940s, but decades would pass before it was used widely. In the modern version of this process, producers drill through several layers of the Earth's crust. Then, they blast a mixture of water, sand and chemicals through the rock at a high pressure. This fractures the rock and unlocks oil from the crust. For many years, producers used fracking to maximize production from conventional resources, large reservoirs of crude oil that were easy to draw to the surface. But, a breakthrough in the nearby Barnett Shale unlocked vast new reserves in shale rock formations. In 1998, an engineer at Mitchell Energy used a dramatically higher ratio of water to chemicals and sand to blast through sediment. The new method made it possible to extract resources that weren't previously commercially viable. While fracking helped producers recover every drop possible, new drilling technologies expanded their reach especially horizontal drilling. It became common in the Permian in the 2000s. The advent of horizontal drilling meant that producers could target multiple formations from a single site at the surface. These wells can sometimes stretch for miles. Fracking and horizontal drilling are particularly effective for the Basin's geology. The Permian's Western subbasin, the Delaware, has more depth than other parts according to the USGS. - Because they are so thick, industry is able to put in multiple wells within that stack of units and drill multiple horizons to produce oil, and that is really what's unique about that area. - [Narrator] The Permian has significant deposits of shale rock, and the combination of fracking and horizontal drilling in the 2000s made the tight oil in shale recoverable. This combination set the stage for the shale revolution which picked up steam in the 2010s. This put the Basin at the center of a crude oil renaissance in America. The national production rate, which had dwindled for decades, mounted a turnaround. Since the mid-aughts, the national crude production rate has mostly climbed upward on the strength of the Permian save for a short decline that began in 2015. The year prior, US crude prices plunged 50%. Many producers in the Basin scaled back production to prevent further losses, but the producers that survived were in position to drive the Permian to new heights. Moving ahead to 2018, the United States surpassed Saudi Arabia and Russia to become the world's leading oil producer, but this production brought new challenges. First is the issue of well placement. Here's an oil field outside of Odessa, Texas in 2003. By 2018, these fields were brimming with well pads. That can put a damper on production rates. - Producers in recent years have tried to space wells more closely together to maximize the amount of oil and gas that they are able to get out of their acreage. They found, in some instances, that that hurts the output of individual wells. Producers are kind of going back and increasing the distance between the wells that they drill. The result is that they have fewer overall locations to drill the acreage that they have. - [Narrator] And the problems don't end there. The pipelines that run through the Permian have had a capacity issue. In recent years, oil production in the Permian has increased faster than pipeline capacity leading to bottlenecks and discounted prices, and when capacity isn't sufficient, producers are instead left to transport resources by rail or truck, or they have to slow down production. New pipelines are scheduled to come on line in late 2019 which could help alleviate price discounts. But, the energy producers in the Permian can't escape their fraught connection to the climate and environment. Consider the issue of flaring. The natural gas flowing from the Permian is mostly a byproduct. When producers drill for oil, they also unearth natural gas which is less profitable. Facing limited profitability and pipeline capacity issues, many drillers choose to burn their fuel onsite. Flaring in the Permian is at all-time highs according to Rystad Energy. - That's a concern, first of all, because it's a colossal waste of energy, but more so, they can cause local air quality issues if they're not burning properly, and we're releasing a bunch of greenhouse gas into the air as carbon dioxide that we're wasting, so flaring benefits nobody. The only thing that it's better than is releasing the methane into the air directly. - [Narrator] The string of boom towns and man camps along the Permian Basin represent the heartbeat of American energy. All eyes are on the region as the US fights to maintain its position atop global oil markets. (orchestral music)