Most people have heard the old saying: “You can put lipstick on a pig. But it’s still a pig.” That’s sort of what is happening in the American oil patch as producers try to put a positive gloss on the devastation that low oil prices are visiting on the industry.
Perhaps the most inventive redefinition is as follows: The part of the U.S. oil industry devoted to extracting tight oil from deep shale reservoirs in places such as North Dakota and Texas has made the United States the world’s “swing producer.” A swing producer is a country or territory that has large production in relation to the total market, substantial excess capacity and the ability to turn its capacity on and off quickly in response to market conditions.
The term makes the U.S. oil industry sound powerful and important. And, while the U.S. industry remains an important player in the world–third in production behind Russia and Saudi Arabia–it is most definitely not powerful in the sense that the moniker “swing producer” would imply.
To understand why this is so, we need only examine the history of the world’s other two swing producers. Prior to 1970, Texas was the world’s swing producer. Starting in the 1930s the state of Texas began regulating the amount of oil that an oil company could produce from its wells. It did this when overproduction drove the price of oil down to a mere 13 cents a barrel. (That’s not a typo.) No one was making any money. Well owners were then forced to abide by a system called “proration” in which each well was allowed to produce at a percentage of its capacity.
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