Wednesday, August 17, 2011

Adios OPEC: The Americas, Not the Middle East, Will Be the World Capital of Energy in the Future

Excerpts from a new Special Report from Foreign Policy:

"For half a century, the global energy supply's center of gravity has been the Middle East. This fact has had self-evidently enormous implications for the world we live in -- and it's about to change.

By the 2020s, the capital of energy will likely have shifted back to the Western Hemisphere, where it was prior to the ascendancy of Middle Eastern megasuppliers such as Saudi Arabia and Kuwait in the 1960s. The reasons for this shift are partly technological and partly political. Geologists have long known that the Americas are home to plentiful hydrocarbons trapped in hard-to-reach offshore deposits, on-land shale rock, oil sands, and heavy oil formations. The U.S. endowment of unconventional oil is more than 2 trillion barrels, with another 2.4 trillion in Canada and 2 trillion-plus in South America -- compared with conventional Middle Eastern and North African oil resources of 1.2 trillion. The problem was always how to unlock them economically.

But since the early 2000s, the energy industry has largely solved that problem. With the help of horizontal drilling and other innovations, shale gas production in the United States has skyrocketed from virtually nothing to 15 to 20 percent of the U.S. natural gas supply in less than a decade. By 2040, it could account for more than half of it. This tremendous change in volume has turned the conversation in the U.S. natural gas industry on its head; where Americans once fretted about meeting the country's natural gas needs, they now worry about finding potential buyers for the country's surplus (see chart above).

Meanwhile, onshore oil production in the United States, condemned to predictions of inexorable decline by analysts for two decades, is about to stage an unexpected comeback. Oil production from shale rock, a technically complex process of squeezing hydrocarbons from sedimentary deposits, is just beginning. But analysts are predicting production of as much as 1.5 million barrels a day in the next few years from resources beneath the Great Plains and Texas alone -- the equivalent of 8 percent of current U.S. oil consumption. The development raises the question of what else the U.S. energy industry might accomplish if prices remain high and technology continues to advance. Rising recovery rates from old wells, for example, could also stem previous declines. On top of all this, analysts expect an additional 1 to 2 million barrels a day from the Gulf of Mexico now that drilling is resuming. Peak oil? Not anytime soon.

A hydrocarbon-driven reordering of geopolitics is already taking place. The petropower of Iran, Russia, and Venezuela has faltered on the back of plentiful American natural gas supply: A surplus of resources in the Americas is sending other foreign suppliers scrambling to line up buyers in Europe and Asia, making it more difficult for such exporters to assert themselves via heavy-handed energy "diplomacy." The U.S. energy industry may also be able to provide the technical assistance necessary for Europe and China to tap unconventional resources of their own, scuttling their need to kowtow to Moscow or the Persian Gulf. 

So watch this space: America may be back in the energy leadership saddle again."

15 Comments:

At 8/17/2011 1:47 PM, Blogger Benjamin said...

Dr. Perry is red hot today!
This is a terrific post.

Via Con Dios OPEC, and you can kiss my CNG car's ass!

 
At 8/17/2011 2:25 PM, Blogger Rufus II said...

Yep, we only Imported 65.1 MILLION BARRELS Of OIL LAST WEEK.

And, took another 5 Million Barrels out of our Strategic reserve.

We're practically swimmin' in the stuff.

 
At 8/17/2011 2:29 PM, Blogger NormanB said...

If only we had an adminstration that was pro-energy development. But instead we have either silence (it'd impinge on the green energy dream) or phony enviornmental roadblocks. Just another sign of dysfunctionality.

 
At 8/17/2011 2:30 PM, Blogger Rufus II said...

Oh, and we still "Import" 10% of our nat gas supply from Canada.

 
At 8/17/2011 3:05 PM, Blogger Benjamin said...

And the Bush Bros. still have a permanent ban on oil drilling off the coast of Florida in effect.

 
At 8/17/2011 3:56 PM, Blogger Buddy R Pacifico said...

What are the key ingredients in horizontal drilling? Water and Proppants.Porppants are basically fine sand aggregates. There are lingering shortages of Proppants, but this is a booming industry with lots of new entrants and high-tech sand formulations. The average new well uses 3-5 million pounds of Proppants.

 
At 8/17/2011 5:29 PM, OpenID thefarmerslife said...

I took you to task with a comment yesterday on your post about the "Ethanol Scam" and I touched on the need for using all our energy sources. This post highlights a number of those things. Great job!

 
At 8/17/2011 8:20 PM, Blogger Michael Hoff said...

So look for Russia, Venezuela and Iran to funnel tons of cash to the American environmental movement and the DNC to whip up more hysteria about the evils of hydrocarbons. If they aren't doing so already.

 
At 8/18/2011 7:18 AM, OpenID American Delight said...

In that case you would think we'd be a little friendlier to our Latin neighbors to the south, instead of cozying up to China and the Arab Springers...

 
At 8/18/2011 9:01 AM, Blogger Moderator MA said...

Well I remember the 70's and all the talk and BS about the end of cheap oil propegated by the oil cartels and the wall street thieves. If you beleieve them again you are a fool. There are always alternatives and always have been. The reason a dirty and expensive commodity like oil has persisted for so long is the fact that so much industry is tied to it with all the jobs and paychecks it commands. If there really was a peak oil problem innovation would have taken over and we would now be using cleaner, cheaper, energies which I might add already exist and have for many years. When we clean up our politics and our greedy corporations you won't have an energy problem any more. Likely we would already be on distant planets if innovation was allowed to proceed without barriers for market entry and geo politics. Keep this in mind next time you hear the Peak oil BS.

 
At 8/18/2011 12:14 PM, Blogger Ron H. said...

"Well I remember the 70's and all the talk and BS about the end of cheap oil propegated by the oil cartels and the wall street thieves."

Do you really remember those things about the 70s or have you since then read something about them?

 
At 8/20/2011 12:27 AM, Blogger HBGuy said...

Perhaps output from the Bakken, Texas and existing wells will reach 1.5 million bpd, but how much will output from existing sources decline?

Mexico will soon cease to be a net exporter of oil as Canterell declines into oblivion, leaving the Keystone pipeline from Alberta to make up some of the difference. North Slope output has also been declining for years, and will become irrelevant in a few years.

Bottom line, if we're lucky, shale and other non-conventional oil sources will stem the decline of existing sources, but it's no panacea. If we REALLY want to capitalize on our energy bounty, natural gas has to become an important energy source for transportation fuels, or we'll continue to be at the mercy of OPEC, Russia and other suppliers who are at best hostile to us.

 
At 8/20/2011 1:30 AM, Blogger Ron H. said...

"If we REALLY want to capitalize on our energy bounty, natural gas has to become an important energy source for transportation fuels, or we'll continue to be at the mercy of OPEC, Russia and other suppliers who are at best hostile to us."

As the world's largest user of petroleum, and the largest customer of OPEC, Russia and other suppliers, how do you see the US being at the mercy of those countries rather than the other way around?

The notion that the US shouldn't import oil, while so many other things are imported, including some for which there is NO domestic supply, seems really odd.

 
At 8/21/2011 9:32 PM, Blogger VangelV said...

What a joke. Amy Myers Jaffe has no clue about geology or the business of oil. She is a political wonk who has no clue about the actual reality.

As I have pointed out many times on this blog there is no money made by the shale gas producers. Production is not going up because there is a profit to be made but because of technical reasons that have to do with leases as well as accounting rules that permit an overstatement of reserves. And even though we saw hundreds of billions in new investment the world produces less oil today than it did in 2005, which is when peak production was reached.

Peak Oil is already behind us boys and girls. This does not mean that prices can't go down because if the optimists are wrong we could see another major contraction in the real economy that should get the traders of paper oil to hit the sell buttons. But any decline in price will mean less investment and falling production levels, taking us further and further from the peak. Eventually the reclassification issues and the reporting games will be noticed and when that happens prices will reflect the new reality.

As for the new production from the Gulf, the drilling may not be enough to offset depletion from existing fields. And if we look to Cantarell's great fall nobody can be very optimistic about the Gulf being much of a solution.

 
At 8/21/2011 9:40 PM, Blogger VangelV said...

Well I remember the 70's and all the talk and BS about the end of cheap oil propegated by the oil cartels and the wall street thieves. If you beleieve them again you are a fool.

But we did run out of cheap oil. The $5 oil was replaced by $10 oil, $20 oil, $50 oil, and now $100 oil. The 'thieves' were right.

And anyone who believes that Wall Street only plays the long side is a fool.

There are always alternatives and always have been.

But they are not as cheap and not as useful as fuel.

The reason a dirty and expensive commodity like oil has persisted for so long is the fact that so much industry is tied to it with all the jobs and paychecks it commands.

On what planet. Oil sells for less the equivalent volume of Starbucks coffee or mineral water. It isn't expensive. It is very cheap.

If there really was a peak oil problem innovation would have taken over and we would now be using cleaner, cheaper, energies which I might add already exist and have for many years.

Look at the data. Production of light sweet crude peaked in 2005. US production peaked in 1970. You can try to ignore this reality but if you do the consequences will come to bite you in the arse.

When we clean up our politics and our greedy corporations you won't have an energy problem any more.

Greedy corporations? Exxon gets less for a gallon of gasoline in profit than the thieves in the government do in taxes. Get a dictionary and a book on logic please. You are sounding like an idiot lefty.

Likely we would already be on distant planets if innovation was allowed to proceed without barriers for market entry and geo politics.

Well you certainly seem to be on a distant planet because this one is not as you describe it.

Keep this in mind next time you hear the Peak oil BS.

Try reading. Spare capacity is at historical lows and production is below what it was in 2005. Just how many data points do you need to see before you can figure out the big picture?

 

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