Energy 2020: North America, the new Middle East?

Energy 2020: North America, the new Middle East?

Citi’s take on the North America energy revolution led by shale gas, tight oil, and oil sands. A thoroughly well researched report. Click on the above link to get the entire report. Highly recommended!

Snapshots (everything is quoted):

Five incremental sources of liquids growth could make North America the
largest source of new supply in the next decade: oil sands production in
Canada, deepwater in the US and Mexico (focused on the Gulf of Mexico), oil
from shale and tight sands, natural gas liquids (NGLs) associated with the
production of natural gas, and biofuels. The US alone could add 6.6-m b/d to
bring liquids from 9-m b/d at end-2011 to over 15.6-m b/d in 2020-22. In total,
North America as a whole could add over 11-m b/d of liquids from over 15-m
b/d in 2010 to almost 27-m b/d by 2020-22.

The demand in the US for major petroleum products has fallen substantially
between 2005 and 2011, with year-end 2011 data pointing to a drop of 1.5-m
b/d over the last seven years. Going forward, demand could fall by as much
as an additional 2-m b/d due to demographic changes, policies on fuel
efficiency and the mass commercialization of new technologies, countered
somewhat by continued economic and population growth. Gasoline demand
could fall to 7.4-m b/d in 2020 from 9.0-m b/d in 2010 and distillate demand for
road use could fall to 1.7-m b/d in 2020 from 2.1-m b/d in 2010.2
Our scenario
assumes that the adoption of new technology could drive about half the
decrease in consumption, with the other half coming from changes in the
population make-up and rising efficiency standards. Electric, hybrid and
natural gas vehicles (NGVs) could begin encroaching on the market shares of
gasoline and diesel engines in a meaningful way within three more years. See
the section “Shale gas revolution drives paradigmatic shifts across sectors”
for details on NGVs.

The shale gas production boom that propelled the fundamental change in the
natural gas market in the US could begin to transform other sectors, both in
North America and abroad. These include a shift in global trade flows in gas, a
step-wise jump in gas-fired use in power generation, a dramatic rise in natural
gas use in land- and marine-based transportation, and a resumption of solid
growth in residential/commercial requirements. But the most momentous
change of all looks likely to be in the re-industrialization of America based on
dramatically lower cost feedstock than is available anywhere in the world,
with the possible exception of Qatar.

The complex and integrated nature of natural resource development makes it
an area especially rife for politics that can both serve to buttress as well as
challenge its growth. Whilst the story of North American ‘energy
independence’ is one of incredible potential and possibility that could alter
the geopolitical landscape from the Middle East to the Mid-Continent — public
policy might well be the most critical factor in determining whether the
current steep supply trajectory remains robust for many decades to come or
if it fizzles out; trumping both technology and geology.

No other region of the world is having as significant impact on global markets
as North America. The rapid growth of production combined with the decline
in US consumption is as effective as a producer adding 700-k b/d per year to
global balances. For a number of years, the main thrust will be in a reduction
in crude oil imports combined with increased petroleum product exports. By
the end of the decade, net oil exports from Canada outside of North America
and some gross exports from the US are on the horizon along with
incremental exports from Mexico. If Venezuela turns around current obstacles
to production growth and if Brazil fulfills its potential, the Western
Hemisphere as a whole will in many respects represent the new Middle East.

To summarize our main findings, we estimate that the cumulative impact of new
production, reduced consumption, and associated activity may increase real GDP
by 2 to 3%, creating from 2.7 million to as high as 3.6 million net new jobs by 2020.
Furthermore, the current account deficit could shrink by 2.4% of GDP, a 60%
reduction in the current deficit, by 2020. This may also cause the dollar to
appreciate in real terms by +1.6 to +5.4% by 2020.

We estimate that some +550,000 new jobs would be directly created in the oil and
gas extraction sector by 2020. Furthermore, some +2.2 million to +2.3 million new
jobs would be created directly from the resulting economic stimulus effects of new
production by 2020.13 On top of that, some +785,000 new jobs are created as the
improved efficiency in the US consumer profile frees up consumer incomes for other
spending and job-creating economic activity. This cumulatively creates some +3.6
million new jobs, reducing the national unemployment rate by roughly -0.8% by
2015 and by -1.1% by 2020.

Cumulatively, some -$471 billion (in 2005 $) may be shaved off the current account
deficit or about 2.4% of the hypothetical GDP in 2020. About 1.9% percentage
points of this 2.4% cumulative impact stems from the reduction of imports and the
boost in exports of hydrocarbons from new oil and gas production, with the
remainder coming from reduced consumption from new technologies, and exports
of related manufactured products.14 This more than offsets increases in net imports
in the non-oil and gas sector.