Tight oil and the next energy renaissance
NPR had a great piece about the impact of tight oil discoveries (e.g. the Bakken formation) and just how much it has changed the energy landscape in the USA.
For example, crude oil production from ND has doubled over the last year, to over 660,000 barrels a day. In short:
(credit to NASA/NPR, link above).
The new gold rush has literally lit up the countryside so much that it can be seen from space. What drove such a boom in oil production that the International Energy Agency is now predicting that US production will surpass Saudi Ariabia's by 2017?
In a word, fracking. The same new technology that was all the news in natural gas has been applied (along with horizontal drilling) now to oil-bearing rocks that were previously inaccessible (such as the Bakken).
This resulted in the out-performance of US (midcontinent) refiners, which have cheap access to such crude oil and can sell product at wider margins in the world market:
Yet, wti crude still remains around the 95$ level - a discount to the european/world brent oil prices, but still higher than say in 2006. But, not being an expert on this, does crude oil run the risk of becoming the next natural gas?
(credit to http://express.howstuffworks.com/exp-oil.htm for icon)
With 17 million barrels per day (mmbpd) refining capacity in the US, and estimated 2012 production of 6.8 mmbpd (the all-time high in US history was around 10 mmbpd in 1970), the boom has a long way to go to produce excess supply for the US as a whole in my opinion.
The more interesting problem is the dynamics created by a lack of pipelines within the US, such that the places with the biggest refining capacity don't yet have access to the cheap oil stuck in the midwest, causing large price differential across the US.
A related question to anyone: how long do you think it will take for the WTI/Brent spread to go back to historically norms? Or will it ever?
That should be 6.4 not 6.8 sorry
Brent--inflated pricing is driven principally by London hedge fund manipulation and North Sea ease of transport vs. onshore US.
Doubt it-- US natural gas can't be exported (yet), while crude can.
Issue weighing on WTI right now is the storage glut at Cushing (+35-40% over five year average level), as it is the main export point for US oil and destination for most domestic pipelines.
Now that the seaway pipeline was reversed last week (which will help glut at Cushing), combined with massive build in crude-by-rail capacity since mid-2012 allowing transport to multiple export points, US oil will likely be on Brent-linked pricing in the intermediate future. Therefore, Brent less transport to coasts less transport to Europe/Asia (ballpark $20/bbl total) is likely the long-term floor.
I don't think there will ever be an excess supply issue nor will the story resemble that of natural gas for a couple reasons:
Demand for oil globally continues to increase. Everyone in China, Russia, Brazil, India, etc. wants a car. Just because there's more of it in the U.S. doesn't mean it will be sold exclusively in the U.S. It's a global commodity with a global demand that (as a whole) is increasing.
Part of the reason natural gas prices fell on their face was there wasn't an immediate use for it. In fact, the U.S. considered exporting it due to lack of infrastructure. At the time when the Marcellus shale formation was tapped, the majority of power plants in the U.S. were powered by coal. It took a while for power companies to convert or build from scratch plants that ran on natural gas.
"The United States consumed a total of 6.87 billion barrels (18.83 million barrels per day) in 2011 and 7.0 billion barrels (19.18 million barrels per day) of refined petroleum products and biofuels in 2010. For both years, this was about 22% of total world petroleum consumption." Source: http://www.eia.gov/tools/faqs/faq.cfm?id=33&t=6
Am I mistaken or is this number not already quite close to the yearly consumption in the US?
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