Why the Permian Basin Is OPEC's New Headache: QuickTake Q&A
The Organization of Petroleum Exporting Countries meets in Vienna on May 25 to review the group’s six-month-old policy of curbing production to shore up prices. Its strategy hasn’t really worked and has helped revive investment in U.S. shale. Is OPEC’s power to control the price of oil on the wane? (Source: Bloomberg)
A dry expanse straddling the Texas-New Mexico border has become such a bounty of energy that it’s now a threat to OPEC. Surging output from the Permian Basin, which has been described as a layer cake of oil and natural gas, is projected to help push U.S. crude production to a record next year, making it harder for members and partners of the Organization of Petroleum Exporting Countries to move prices higher and lower by controlling the supply to the world. As technology improves, and geologists learn more about what’s underground, estimates of Permian reserves steadily increase.
The basin -- a geological term for a low-lying area that collects sediment -- may contain more recoverable oil than any field except Saudi Arabia’s Ghawar. Running 250 miles wide and 300 miles long across West Texas and southeastern New Mexico, it’s a bonanza for drillers, not only because it has layers of oil-rich stone, but also because each seam is 10 or 15 times thicker than those in other shale formations such as Bakken (in North Dakota, Montana and Canada) or Eagle Ford (in southern Texas). Adam Sieminski, an analyst at the Center for Strategic and International Studies in Washington and former head of the Energy Information Administration, compares it to a layer cake: Once a seam is exhausted, there’s another ready for exploitation.