The new cool kids on the block — Saudi Americas

The USA: Delloitte (2012) is forecasting a 'New Paradigm in Oil Market'; in fact it is calling the USA as the 'The New Cool Kid on the Block'. It has 17 billion barrels of shale oil. The cost of hydraulic is fracking declining, but the finding and development costs of conventional oil is increasing, which is bringing in new investments in shale oil. Western North Dakota, eastern Montana and south Texas have 4.3 billion barrels of recoverable oil estimated in 2008. By 2015, production from south Texas is expected to be 450,000 barrels per day and 1 million barrels per day from the whole region.

'This is a historic shift that's occurring, recalling the time before World War II when the U.S. and its neighbours in the hemisphere were the world's main source of oil', said Daniel Yergin, an American oil historian. 'To some degree, we're going to see a new rebalancing, with the Western Hemisphere moving back to self-sufficiency.'[1]

According to the Financial Times (15 June 2012), ConcoPhilips Chief Executive said, 'North America could become self-sufficient in oil as well as gas by 2025';'thanks to unconventional, proved reserves have risen by 68% since 1990' (plus deepwater resources in North America). 'Much of the increased production will come from shale oil but a significant quantity from Alaska's offshore waters.[2] Rising North American production may not make the region self-sufficient, but it could still transform the dynamics of the market'.

The Pipeline and Gas Journal (August 2012)[3] declared 'the industry is getting closer to what one could call energy independence'. However, it hastened to add that it does not necessarily mean cheaper fuel at the pump for the people of 'Saudi America' because crude oil is 'a world commodity and regardless of the sources, prices vary because of many world conditions'.

Pipeline & Gas Journal (February 2014) in an article named "The Name Of The Game Is Still Pipelines[4] "  reported that US "oil production rose by a record 992,000 bpd in 2013.That exceeded the increase of 836,000 bpd in 2012, a 15% jump that is the highest annual surge for any country in over 20 years.

Although US production is the highest since 1989, it is still far below the1970 record of 9.6 million bpd. The IEA "forecasting that American production will add 782,000 barrels, to 8.3 million bpd, the first time in 25 years its hit 8 million."

It predicts that if the IEA's forecast is accurate, then US "oil production will have increased 46% over the three years from 2011-2014."

Brazil – at a crossroad: In the same report, Delloitte (2012) considers Brazil to be 'At a crossroad' due to the discovery of 50 billion barrels of reserves in the region off the coasts of Rio De Janeiro and Espirito Santo with some estimates in the 120 billion barrels of high-quality light, sweet, crude oil. There are 250 billion dollars' worth of investments in the next five years. However, the report warns of challenges due to complex negotiations on Production Sharing Agreements, high tax burdens, competing interests of federal governments, state governments, and local and international oil companies. Brazil's new oil fields are known as 'pre salt deposit' and are 18,000feet below the ocean's surface underneath a 6,000-foot layer of salt. According to National Petroleum Agency estimates, the fields could hold more than 100 billion barrels of high-quality recoverable crude. Brazil currently produces 2.1 million barrels per day, it plans to produce 5 million barrels per day by 2020. Less than 10% is pre salt now.[5]

Canada – the new energy superpower: Canada has the third largest oil reserves in the world and it is already the top energy supplier to the US and hopes to become the top supplier for other nations as well. Over the next 10 years, the industry will invest at least US$200 billion. According to the Canadian Association of Petroleum Producers (CAPP), Alberta has 173 billion recoverable barrels of oil from oil sand, worth C$15.7 billion (2012 price). It produces approximately 1.5 million barrels per day and forecast to produce 5 million barrels per day by 2025. The break-even point of oil sand was C$75/barrel a few years ago; now it stands at C$50/barrel (according to an estimate by Shell).

TransCanada has proposed building a $7 billion pipeline, Keystone XL, to send 510,000bpd of Albertan oil to refineries in Texas. It already has a line of similar capacity, Keystone. The proposed pipeline will open up the international market to Canada. Washington is yet to approve it due to environmental concerns. Canada's oil sand project has been described as the 'Most environmentally destructive project on earth'.[6] The movement to stop this 'dirty oil' has gathered momentum. Several American states, led by California, have passed laws designed to stop Albertan oil reaching their citizens. Some American retailers have forsworn fuel from the tar sands. Pipeline & Gas Journal⁴ (February 2014) reported that the US State Department's study has come down in favour of Keystone XL pipeline, and it will not oppose a serious threat to the environment.

There are plans to ship oil to Asia from Canada's Pacific coast. Northern Gateway, an ambitious Pacific coast proposal, would allow exports to Asia and help Canada become the 'new energy superpower' according to Canadian Prime Minister (Stephen Harper) in 2006. The project would cost C$5.5 billion and would carry 525,000 bpd of oil.

By 2030, oil-sands production is expected to account for up to 90% of Canadian production. Also by 2030, according to HIS CERA (a consultant firm) the tar sands should supply more than one-third of America's imported oil.[7]

It may be added here that in spite of public concerns about significant environmental impacts of hydraulic fracking in the USA and Canadian oil sands, the strategic objectives of energy security and energy independence for the US (i.e. little or no import of Saudi or Middle Eastern oil) and the desire to become a leading oil exporting country by Canada, respectively, will most possibly win the argument.

Canada, on the other hand, has the third highest proven reserves, comes sixth in production and it is not even in the top 10 oil exporting countries. It may change very soon. It is planning to increase its export to the USA through existing pipelines and a proposed one, known as Keystone XL. It is also planning to develop infrastructures to export oil from its west coast to Asia.

According to Natural Resources Canada, by 2030, oil sands production is expected to account for up to 90% of Canadian production. It also forecast that unconventional production techniques and unconventional sources, like shale, will be key features of future crude oil production.[8]

Venezuela- The Sleeping Giant: Venezuela (296.5 billion barrels) has the largest oil reserve in the world. It is interesting to note that Venezuela has the largest proven reserve, but in terms of both production and export it comes tenth, which indicates potential for its refinery and export capacity to increase in the future. Venezuela is only about five days away from the US Gulf Coast by tanker,[9] and it takes about four weeks from Nigeria to reach the same destination. However, the volume of crude oil export from Venezuela[10] (0.9 million barrels per day [mbpd]) and Nigeria (0.8 mbpd) are very close, which also indicates that Venezuela has not tapped into its full export potential vis-à-vis oil thirsty US market.

According to the US Energy Information Administration Venezuela's crude oil "production levels have declined by roughly one-quarter since 2001. Natural decline at older fields, maintenance issues, and the need for increasing foreign investment are behind this trend. Venezuela's development of its oil reserves has been affected by political unrest in recent years."

Conclusion: "The International Energy Agency⁴ now says the U.S. will surpass Russia and Saudi Arabia to become the world's largest oil producer in 2015.By 2035, the IEA projects that North America's need for oil imports will all but disappear." The discussion above indicates that in the future the US will be less reliant on crude oil imports from the volatile Middle East, so the impact of oil productions in the Americas will have far reaching consequences for geo-politics. However, we have to patiently wait for that moment for another 21 years!

———————————–
Rabiul H. Zaki is a BUET and AIT graduate currently working in Australia.

[1]

New York Times,

www.nytimes.com

[2]www.alaskadispatch.com, 17 June 2012.

[3] 'Energy Independence Edging Closer to Reality', by Carol Freedenthal, August 2012, Pipeline and Gas Journal, www.pipelineandgasjournal.com

[4] Pipeline & Gas Journal, February 2014 Vol. 241 No. 2, http://pipelineandgasjournal.com/name-game-still-pipelines?page=show&goback=%2Egde_3356338_member_5836559477146398724

[5] US EIA 2012 and AFP 21 September 2012.

[6] Vast open pit mines, lots of energy and water, yields the notorious 'tailing', a residue of sand, unclaimed bitumen, water, clay particles and contaminants. Threaten local rivers, poison fish, destroy the landscape, kill wildlife and pollute air. 'Canada's Toxic Tar Sands: The Most Destructive Project on Earth'http://environmentaldefence.ca/reports/canadas-toxic-tar-sands-most-destructive-project-earth

[7]'Canadian Crude Oil, Natural Gas and Petroleum Products: Review of 2009 & Outlook to 2030', May 2011, Natural Resources Canada,http://www.nrcan.gc.ca/energy/publications/sources/oil-gas-review-outlook/1229

[8]'Canadian Crude oil, natural gas and petroleum products: Review of 2009 and outlook to 2030', Amy 2011, Natural Resources Canada, http://www.nrcan.gc.ca/energy/publications/sources/oil-gas-review-outlook/1229

[9] 'Impacts of the Venezuelan Crude Oil Production Loss', 15 March 2007, www.eia.gov

[10] 'Nearly 69% of U.S. crude oil imports originated from five countries in 2011', 27 March 2012, www.eia.gov