US on brink of strong oil, gas growth, Senate panel told

Higher crude oil prices, breakthroughs in technology, and more access to prospective acreage are creating a US oil production revival that is a major break from nearly 40 years of declining production, two experts told the US Senate Energy and Natural Resources Committee on Jan. 31.

“We believe that by 2020, the United States will become the largest producer of hydrocarbons in the world, surpassing Russia,” said Roger Diwan, partner and head of financial advisory operations at PFC Energy. Now that producers have solved the problem of producing oil and gas from tight shale formations, the nation is on the verge of a golden energy era which is reshaping the industry worldwide, he maintained.

“When you look at global oil and gas investment, the US has been the key destination in the last 10 years,” Diwan said. “The global industry is making money all over the world, and investing it in the US.”

The scale of the opportunity to increase US oil production is greater than in most other countries over the next decade, noted James Burkhard, managing director of IHS CERA Inc.’s global oil group.

“Indeed, the oil and gas industry in this country has attracted tens of billions of dollars of investment capital,” he said in his written testimony. “In the United States, spending to develop oil and gas fields rose 37% from 2009 to 2010—from $50.6 billion to $69.4 billion. Spending increased further in 2011.”

Howard K. Gruenspecht, acting administrator at the US Energy Information Administration, said the US Department of Energy’s independent forecasting and analysis agency’s initial 2012 Annual Energy Outlook (AEO) reference case forecasts 20% growth in US crude production over the next decade. Net petroleum imports are expected to drop from 49% of total US consumption in 2010 to 38% in 2020 and 36% in 2035 as a result, he said.

Gas export prospects

EIA’s initial 2012 AEO also projects that the US will become a net exporter of LNG by 2016, a net exporter of gas by pipeline by 2025, and an overall net exporter of gas by 2021, he said in his written statement. “The outlook reflects increased use of LNG in markets outside of North America, strong domestic gas production, reduced pipeline imports and increased pipeline exports, and relatively low gas prices in the United States compared to other global markets,” Gruenspecht said.

“With increasing supplies, gas prices in the United States are down,” observed a fourth witness, Richard H. Jones, deputy executive director of the Paris-based International Energy Agency. “Oil prices also are lower, with [West Texas Intermediate] much lower than Brent crude. Prices here generally are lower than in other markets already.”

He noted that when IEA looks at global oil markets, it finds that prices have been relatively stable over the last year. “Prices peaked at $120[/bbl] in April of last year, and they’ve been oscillating between $100[/bbl] and $120[/bbl] ever since,” Jones told the committee. “We think the concern for disruption has put a floor under prices, and a ceiling is there resulting from a fear of economic activity putting pressure on demand. The interplay of these two factors has kept the price in this range, and we think it’s too high considering the availability of oil in this market.”

Diwan said PFC Energy expects liquids production growth outside the Organization of Petroleum Exporting Countries to recover in 2012, led by the US, Canada, Colombia, Brazil, and Russia. More production from the Bakken and Eagle Ford shales will help the US lead this liquids growth, he said in his prepared statement.

“There are several other shale areas that are just starting to be drilled, and if those prove as prolific, then our forecast is likely to be raised,” he added. “We have also penciled in an end to output losses in the Gulf of Mexico after the Macondo spill.”

Burkhard said application of advanced technology will be critical to future US oil and gas production growth, with fracing and horizontal drilling at the heart of the US expansion and the debate about environmental impacts. “Questions about water availability and quality, air pollution, cumulative land use, and the impacts on local communities need to be addressed to ensure that oil and gas development meets environmental needs and enhances public trust,” he testified.

Contact Nick Snow at nicks@pennwell.com.

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