The Most Important Energy Developments Of 2012

From Forbes

By Bruce Upbin

I. What might US energy independence look like?

Rising crude oil production in Texas and North Dakota has contributed to a reversal of the long-term US production decline. The latest data (June 2012) show North Dakota now ahead of Alaska’s North Slope. The growth in US domestic production is notable, but on its own insufficient to result in energy independence since the US still imports ~9 mm barrels per day (bpd) of oil. But when combined with other factors affecting demand and supply, the concept of energy independence comes into view over the next couple of decades. What is “energy independence”? After some adjustments (and I may be underestimating some of them), US net imports could fall to 4-5 mm bpd, a level which can be met by imports from countries with historically reliable economic and political linkages to the US (everything is relative). The point is not that reduced US crude imports will lower oil prices; countries like China with growing oil needs may offset that. What matters here are the economic and geopolitical benefits from (a) not having to design military and foreign policy objectives based on energy security to the degree the US has over the last 30 years, and (b) being able to reap the growth, employment and current account benefits of domestically sourced-oil and natural gas.

Some detail on the components of increased US energy independence

Net increase in domestic production: we have modeled an increase of 1.8 mm bpd. For context, the 2012 Energy Information Administration (EIA) outlook has a variety of crude oil production scenarios for 2025 ranging from no increase to an increase of 2.8 mm bpd (the “technically recoverable resource” case). Any production increase from current levels is expected to come from “tight oil,” extracted from formations such as Bakken and Eagle Ford, and the Permian Basin. While conventional crude production volumes in the Gulf may rise, these are expected by the EIA to offset declines elsewhere (Alaska). The EIA’s optimism is matched by a June 2012 paper from Leonardo Maugeri at Harvard’s Kennedy School, which projects a US crude oil increase of 2.6 mm bpd by 2020. An illustrative quote:

“The shale/tight oil boom in the United States is not a temporary bubble, but the most important revolution in the oil sector in decades. It will probably trigger worldwide emulation over the next decades that might bear surprising results – given the fact that most shale/tight oil resources in the world are still unknown and untapped…. Thanks to the technological revolution brought about by the combined use of horizontal drilling and hydraulic fracturing, the US is now exploiting its huge and virtually untouched shale and tight oil fields, whose production – although still in its infancy – is already skyrocketing in North Dakota and Texas.”

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