Let's talk about the dramatic changes that have taken place in the petroleum industry just in the past several years. It's quite a story.
Much of the world is acquainted with the "shale revolution" in the United States and Canada that has been a game-changer for North American oil and gas production, but there is more to the story than that. The emergence of the oil sands in Alberta and the rise of Brazil as a major oil exporter have created major new players on the world stage that are capable of competing with OPEC for global business.
Energy development turns out to be an engine for job creation and economic growth. It has fueled the economies of Texas and other petroleum-producing regions while other parts of the US continue to suffer effects from the recent recession. Most states not participating in the energy boom have lackluster economies, while ones with production and related activities are thriving. The trickle-down effect of the energy boom has energized other sectors of the economy as well, including real estate, which was dead in the water after the financial bubble burst. Housing prices are now rising again in regions that have been favorably impacted by the shale revolution.
Lower energy costs have also provided a boost to manufacturing in the US. Petrochemical companies, which use natural gas to make their products, would not have considered new investments a few years ago because natural gas prices were costly and unstable. Today, with abundant supplies and cheaper gas, plants are expanding production and others are building new facilities, bringing in billions of dollars in new investments and creating thousands of new jobs.
An interesting statistic I saw recently: In 2011, the US registered the largest increase in oil production of any country outside OPEC.
In his article on production growth in North America in this month's OGFJ, Rystad Energy's Per Magnus Nysveen forecasts that liquids production (oil, condensate, and NGLs) from North American shale formations will likely reach 8 million barrels per day by 2020. Current production is about 3 million barrels per day. The three largest plays – the Bakken, the Eagle Ford, and the Permian Basin plays – will contribute 60% of the overall production potential for the US and Canada. However, there are significant emerging plays – the Niobrara, the Mississippi Lime, the Utica, and the Woodford in the US – that will be major future contributors.
In Canada, the highest potential for liquids production seems to be from the Duverney, the Cardium, the Montney, and the Bakken. In addition, the output of oil from the Canadian oil sands has tripled since 2000 and is expected to continue its dramatic growth barring a steep decline in oil prices.
With US oil production rising dramatically and Canada its largest supplier, the Canadian government has wisely looked to diversify its market and has been especially active in forging strong relationships with Asia as a potential market for its abundant gas and oil supplies.
In South America, Brazil has developed into one of the world's energy powerhouses in terms of oil production, most of it offshore. However, the Brazilians already have an impressive ethanol industry, which satisfies some of the country's domestic energy demands and allows it to export more oil and improve its trade balance. Argentina is also on the verge of developing its massive shale deposits and is attracting investors and operators from China to Europe to help them get the production on-stream faster.
On the user side, emerging nations like China and India are driving energy demand. The worldwide recession may have slowed their economies a bit, but most observers see this as a momentary bump in the road. Their energy needs will continue to accelerate.
The more mature economies of Europe and Japan will also need energy, and many nations rely on oil and gas imports to meet their demands. Traditional suppliers like Russia and Middle Eastern countries will see increased competition from other sources, including the US, Canada, and Brazil.
A few years ago, Russia's Vladimir Putin briefly cut off natural gas supplies to Ukraine, through which Russia ships 80% of its Europe-bound gas, as a result of a price dispute. Putin's political muscle-flexing ultimately backfired. Ukraine has pledged to reduce Russian gas imports by two-thirds, and the European Union as a whole reduced Russian gas imports by 30% last year.
Europe has chosen to diversify its energy sources so it is less dependent on Russia and its political maneuvering. Europe has increased the volumes of gas it gets from Norway and the Caspian Sea region, and major European oil and gas companies have since invested tens of billions of dollars in North American shale gas, in part to learn the technologies of extracting gas (and oil) from shale and tight formations so they can eventually develop their own resources.
There is no question that the technology that has enabled us to produce economic gas and oil from shale formations has changed the equation. Only time will tell us how important that change will be.
