The U.S. is set to change the entire make-up of the world energy market.
American petroleum production is growing so fast, the U.S. is set to become the world’s largest oil-producing nation by 2017, according to a Medium-Term Oil Market Report (MTOMR) by the International Energy Agency (EIA).
Between 2012 and 2018, oil production in the U.S. will grow to 3.9 million barrels per day. By 2035, the U.S. could fully dislodge itself from OPEC imports if production continues at this level.
The U.S. has the potential to supply a majority of the world’s oil demand and could be a direct competitor against OPEC imports. The MTOMR report also disclosed that developing nations will surpass the developed world in fuel demand for the second quarter of 2013.
The U.S. is also expected to bypass Russia in oil production, according to BBC News, despite Vladimir Putin’s plan of liberalizing the Russian gas market.
Many have long thought natural gas or renewable energy would be the key in breaking away from foreign oil, but the oil industry itself has proved to be the primary tool with which the U.S. could attain energy independence.
Gone are the days when U.S. presidents begged the Saudi King to alleviate rising gas prices, as was the case with President Bush back in 2008. U.S. production is now in full swing and only shows signs of going up.
OPEC seemed relatively unfazed by the recent findings, considering problems are already ongoing. If IEA predictions prove correct, it’s just years before the U.S. ousts Saudi Arabia as the number one oil producing nation.
Meanwhile, OPEC member Iran has been heavily affected by sanctions from the West, and Venezuela is undergoing a degree of political instability from death of Hugo Chavez and ascension of his successor Nicholas Maduro. Venezuela’s state-run oil company, PDVSA, has internal problems to sort through.
Angola has had to contend with crumbling infrastructure in its oil fields and civil unrest. Security concerns in Libya and Algeria are proving to be a disruption for future OPEC business.
Iraq comprises roughly 20 percent of OPEC production, but political disputes between Iraqi leaders and the Kurdistan Regional Government has slowed production down sooner than anticipated. There are also lingering problems related to security, administration, and contract disputes.
Conflicts all throughout the Middle East and parts of Africa could be a factor in declining OPEC imports.
Even though Saudi Arabia is the glue that holds OPEC together, the retraction of worldwide influence of the organization is all too apparent.
But OPEC is also expected to grow within its own right – growing 1.75 million barrels per day to 36.75 mbpd in 2018; still, this is roughly 700,000 barrels less than predicted in the IEA’s 2012 forecast.
Other nations are conducting their own oil and gas campaigns around the globe, but few will match North American output anytime soon.
States Behind the Oil Boom
Various states across the United States can be credited for the U.S. boom.
North Dakota and Texas are two of the most flourishing states when it comes to oil production. North Dakota has the Bakken and Texas has Eagle Ford Shale down south, the Permian Basin in the west, Haynesville Shale to the east, and Anadarko Basin in the north.
Texas is currently the number one oil-producing state in the nation, with North Dakota coming in second. The Bakken makes up 90 percent of the state’s oil production, and Three Forks is proving to be a sizeable backup. The economic outlook is so good in North Dakota, the state is undergoing a housing crunch.
And there is a struggle to find more workers.
A recent revision from the U.S. Geological Survey estimates that Bakken and Three Forks together holds approximately 7.38 billion barrels of oil.
Many critics would contend that the oil industry is placing heavy stress on North Dakota’s economy, but with budget shortfalls and cutbacks so prevalent across many other states, many mayors and governors would kill to have the same problems as The Roughrider State.
In fact, the housing constriction prevents more workers from coming into the state, but local towns are building more lodgings as swiftly as possible. Were it not for housing, the economy of North Dakota would expand even more.
The Bakken and Three Forks formations have contributed to higher wages, and this benefit has extended to workers beyond the oil industry. Employers across many industries are in a better position to pay workers thanks to the Bakken boom.
The state government is even saving 30 percent of revenue collected from taxes and placing it in a rainy day fund – not to be touched until 2017. By that time, the fund is expected to be worth anywhere from three to four billion dollars.
Texas falls in the same boat of economic prosperity. West and South Texas have undergone housing shortages, particularly in the town of Midland. Oil field work for West Texas can begin at $15 an hour. A high school graduate can drive an oil tanker truck for 75K a year in South Texas. Because of Eagle Ford, restaurants are able to pay dish washers $14 an hour.
The North Dakota and Texas economies have been the envy of other U.S. states and nations around the world. Poland hoped to replicate American success through shale gas reserves, but results have so far proved to be disappointing.
And let’s not forget about Alaska.
Alaska was once a treasure trove of oil production, but officials in Alaska are now looking to revive the industry.
The investors and energy companies who get in on the action early will be far ahead of the competition.
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American Oil Investment
Companies in places like the Bakken and Eagle Ford Shale will surely be at the forefront of the oil boom. The IEA also factored in rising technologies – particularly the use of fracking as a means of keeping production in top form.
Companies operating within the North Dakota portion of the Bakken include ConocoPhillips (NYSE: COP), Marathon Oil Corporation (NYSE: MRO), EOG Resources Inc. (NYSE: EOG), Exxon Mobil (NYSE: XOM), Northern Oil & Gas Inc. (NYSE: NOG), and many others.
In the Eagle Ford of Texas, companies operating within the region are Anadarko Petroleum (NYSE: APC), Chesapeake Energy (NYSE: CHK), ConocoPhillips, Apache Corporation (NYSE: APA), and Talisman Energy Inc. (NYSE: TLM). And these are just a few of the big-name contenders investing in The Lone Star State.
Exxon Mobil could especially benefit, since it is an American company with headquarters in Texas.
U.S. refineries have been able to cut down on imports as a result of the oil and gas boom. Valero Energy (NYSE: VLO) has expanded its operations to accommodate rising domestic crude growth in its refineries along the Gulf Coast and Tennessee.
Phillips 66 (NYSE: PSX) has fostered deals with Targa Resources Partners (NYSE: NGLS), Enbridge Energy Partners (NYSE: EEP), and Magellan Midstream Partners (NYSE: MMP) in shipping domestic crude directly to Phillips-based refineries throughout the country.
Motiva Enterprises LLC, a Texas-based joint venture between Royal Dutch Shell (NYSE: RDS-A) and Saudi Arabian Oil Company, is also betting big on domestic crude.
It looks like a win-win for refineries, energy companies, and investors with a vested interest in the oil boom, but the only thing holding U.S. production back is lacking infrastructure. It is an issue that keeps popping up, and it is something the IEA alluded to in its reports.
Back-logs are a concern for many analysts and companies because there is not enough pipeline groundwork to get crude supplies to the market.
This forces many sellers to reduce the price of crude to get rid of product gluts.
At this juncture, Keystone XL is a mere afterthought because of rampant delays and controversy among environmental groups, and there has been no real effort to lay a large-scale national network. Smaller intrastate and interstate pipelines are underway throughout the country, and more energy companies are relying on railway transportation of crude, but if the U.S. expects to compete head-on with Russia and OPEC in the coming years, some overhauls will be needed regarding energy infrastructure.
While lacking pipelines will be a problem, it will not be a major hurdle in preventing U.S. production.
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