Should the US Join OPEC? – Part Two

Continued from Part One.

The NY Times agrees, quoting Rex W. Tillerson, the chairman and chief executive of Exxon Mobil at a recent conference where he said, “The transformation unfolding in North America represents a potentially decisive shift in the history of energy.” The article explores the potential for North America to be self sufficient in hydrocarbons by 2020.

Natural gas prices have led the way falling from a high of $14 per thousand cubic feet a few years ago, to just $2 per thousand cubic feet today, with less than one-seventh the price of LNG cargoes selling in Asia. Cheniere Energy’s $10 billion Sabine Pass LNG plant project in Louisiana, which has just been given approval to export LNG, is likely to be the first of several such plants turning the US into a natural gas player on the world stage with profound implications.

Where shale gas has led, shale oil is following. Shale basins across the country, like the Bakken field in North Dakota, Eagle Ford and Barnett in Texas, and the Marcellus in the Northeast, hold tremendous oil and gas reserves. Only in recent years has this become accessible, with production from the Bakken region alone rising from negligible quantities to 500,000 barrels of oil a day in just a few years.

Production at Eagle Ford was just 787 barrels in 2004, but last year production reached 30.5 million barrels, according to state regulators, and it is still growing. Natural gas production there went from nothing to 243 billion cubic feet in just three years. Estimates obviously vary as to how far and how fast this can grow.

The National Petroleum Council in a study last year gave a low estimate of 10 million barrels a day by 2035 and a high of 20 million barrels per day, but some experts are even more bullish. Citigroup forecast that North American oil production could reach 27 million barrels per day by 2020, almost twice the rate of production of 15 million barrels per day at the end of 2011. Production from the United States could grow to 15.6 million barrels per day by 2020, up from 9 million barrels per day in 2011.

If that proves correct, the growth in oil and natural gas supplies in the next decades could turn the United States into a top energy exporter, rivaling some members of OPEC. Natural gas is already lining up to become a significant export as LNG. Refined petroleum products, and even crude oil, could find customers in Europe and Latin America.

With less gasoline demand as autos become more economical and with owners driving fewer miles (average distance traveled peaked in 2003 at 12,300 miles and could fall to 11,600 by 2020, according to Citigroup), the nation’s surplus refining capacity means the United States is set to expand on the export of petroleum products — like gasoline and diesel. The United States is already the top exporter of refined products, just ahead of Russia.

Imports of crude oil hit a peak in 2005 when the US imported 21 million barrels per day, since then it has fallen by about 3 million barrels per day, due to efficiency gains and the recession. With CAFE standards targeted to achieve 54.5 miles per gallon by 2025, that trend is unlikely to be reversed and indeed should continue.

Continued in Part Three.