For the first time since 1949, the US has become a net petroleum product exporting country and has edged out Russia as the world's largest refined petroleum exporter. A simple explanation would point to lower demand and a struggling economy which requires less imported energy. But, that would only get you half the answer. US demand has fallen by some 2-m b/d since its peak in 2005 in part due to the recession but also due to a structural change due to demographic changes, policies on...
More DescriptionFor the first time since 1949, the US has become a net petroleum product exporting country and has edged out Russia as the world's largest refined petroleum exporter. A simple explanation would point to lower demand and a struggling economy which requires less imported energy. But, that would only get you half the answer. US demand has fallen by some 2-m b/d since its peak in 2005 in part due to the recession but also due to a structural change due to demographic changes, policies on fuel efficiencies and the mass-commercialization of technologies. The more exciting part of the answer is on the supply side as the US has become the fastest growing oil and natural gas producing area of the world and is now the most important marginal source for oil and gas globally. Add to this steadily growing Canadian production and a comeback in Mexican production and you get to a higher growth rate than all of OPEC can sustain.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, oil from shale and tight sands, natural gas liquids (NGLs) associated with the production of natural gas, and biofuels. Putting these together, 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 shale gas production boom that propelled the fundamental change in the natural gas markets in the US could begin to transform other sectors including power generation and transportation. Other incremental gains could come from LNG exports with North America acting as the swing supplier for the world. But the most momentous change 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 economic consequences from this supply and demand revolution are potentially extraordinary. We estimate that the cumulative impact of new production, reduced consumption and associated activity may increase real GDP by 2.0 to 3.3%, or $370-$624 billion (in 2005 $) respectively. $274 billion of this comes directly from the output of new hydrocarbon production alone, while the rest is generated by multiplier effects as the surge in economic activity drives higher wealth, spending, consumption and investment effects that ripple through the economy. This potential re-industrialization of the US economy is both profound andtimely, occurring as the US struggles to shake off the lingering effects of the 2008 financial crisis.The reduced vulnerability of North America -- and the world market -- to oil price spikes also has deep consequences geopolitically, including the reduced strategic importance to the US of changes in oil- and natural gas-producing countries worldwide. Pressures towards isolationism in the US will likely grow, with consequences for global stability that can only just begin to become understood.Whether the increase in production results in the US reducing its imports or whether net exports grow doesn't matter much to world balances. Either way, North America is becoming the new Middle East. The only thing that can stop this is politics -- environmentalists getting the upper hand over supply in the U.S., for instance; or First Nations impeding pipeline expansion in Canada; or Mexican production continuing to trip over the Mexican Constitution, impeding foreign investment or technology transfers -- in North America itself.