26th July 2012
Energy independence is a farce – The Atlantic
America's Holy Grail: Achieving energy self-sufficiency – Mindful Money
Electric Forecast Calls for Increasing Blackouts – Pacific Standard
10 years ago the US exploration and production industry appeared to be a sunset industry. Companies were having to drill anincreasing number of wells simply to maintain reserves and production, let alone grow them
. Since then, there has been a technological revolution in the industry: advances in horizontal drilling and fracturing technology first resulted in a sharp rise in onshore natural gas production. The same techniques are now being applied to oil fields with impressive effect, exploiting oil reserves that have been known about for some considerable time but were previously uneconomic to drill. This has created a step-change in oil production for the US. After almost 40 years of production decline, US oil production has been increasing since 2008, leading to renewed optimism about the possibility that the US will once again achieve energy self-sufficiency.
So the question is: how far can this growth in oil and other liquids supply go? We believe that it will certainly help the country achieve greater oil independence, but not full independence. The US currently imports around 8.5m barrels per day of oil, and we think this may well fall to around 4-5m per day by the end of the decade but will struggle to go much lower.
The first problem is that observers are extrapolating the success rates of the past two or three years out many years into the future. We believe the best basins (notably the Williston and the Eagleford) have already been found and are well on the way to being fully exploited; others are and will be brought on but not necessarily to the same scale. Secondly, there are infrastructure constraints across the US which will hold back the pace of development. And it must also be recognised that drilling unconventionally for oil is generally more difficult than for natural gas. Exploration and production companies still face a fairly steep learning curve which will make this exercise more costly and time consuming that some anticipate.
This is not to paint too gloomy a picture though. For the US to grow their domestic liquids production by around 3-4m barrels per day between now and 2020, as our forecasts imply, might not imply full energy independence but would still represent an extraordinary achievement and one which any US government is likely to support for clear political and fiscal reasons.
As a final comment, it is important to add our view that the onshore oil revolution in the US unlikely to be replicated outside North America anytime soon. The geology of the US is far better known and understood than elsewhere; the country has far better infrastructure (notwithstanding the fact that it needs to grow there too); and the system of mineral rights ownership in the US is far more conducive to development than in most other countries. We think these factors put the rest of the world at least 10 years behind the US in their development of unconventional oil.
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