North American Self-Sufficiency Will Realign Energy Markets

North American oil imports to drop from 8 million barrels daily to just 1 million

An LNG tanker at the Cheniere Energy Sabine Pass terminal in Louisiana, the first US terminal permitted to export natural gas. (Image: Moffatt & Nichol)
An LNG tanker at the Cheniere Energy Sabine Pass terminal in Louisiana, the first US terminal permitted to export natural gas. (Image: Moffatt & Nichol)

Unconventional energy sources will lead a dramatic turnaround in the projected energy trade balance of the United States and Canada, and could create significant changes in the global energy market, a Duke University energy economist told the Autumn Conference sponsored by Statoil.

Richard Newell, director of the university's Energy Initiative and the Gendell Associate Professor of Energy and Environmental Economics at the Nicholas School of the Environment, was one of four featured speakers at the annual conference scheduled for Nov. 19 in Oslo.

Key in this projection is the rise of North American oil and gas production from unconventional sources, such as shale gas, tight oil, Canadian oil sands and biofuels.

"If the word 'revolution' implies tumult, turning things upside down, and not having clarity about where things will end up, it describes the current situation with North American unconventionals pretty well," Newell said. "How the future unfolds will depend not only on how technology and markets evolve, it will also depend on how well energy companies perform in developing these resources in an environmentally and socially responsible way."

In his prepared remarks, Newell noted the findings of the International Energy Agency’s 2012 World Energy Outlook, released Nov. 12, which anticipates the emergence of North America as a net oil exporter and the United States as a net exporter of natural gas over the next generation.

The U.S. Energy Information Administration (which Newell headed from August 2009 to June 2011) corroborates this forecast. The agency predicts U.S. and Canadian imports of oil and other liquid fuels will drop from about 8 million barrels per day in 2010 to about 1 million barrels per day by 2035, assuming vehicle fuel economy standards also continue to improve.

Although conventional liquids production is expected to decline over this period, it is more than offset by a substantial increase in the production of tight oil, oil sands, natural gas liquids and biofuels. "But there is significant uncertainty given how recent these developments are," Newell added, "and actual future production could be lower or higher than this depending on the ultimate resource size, well productivity, and other factors."

Although this shrinking import gap likely means that suppliers such as Saudi Arabia, Venezuela, Russia and Nigeria will send less oil to the United States, demand is expected to rise elsewhere in the world, providing an alternative export destination for the oil that the U.S. will no longer need. Global energy relationships and markets will likely change and evolve as a result.

For natural gas, the situation will be similar, Newell said. Instead of importing increasing quantities of natural gas as forecast several years ago, U.S. production will likely exceed demand and the United States could become a supplier of natural gas to the world.

"Back in 2005 experts in both government and industry thought the United States was on a path to importing an increasing share of its natural gas, with much of those imports coming in the form of liquefied natural gas," or LNG, Newell said. Policymakers were concerned the United States would be unable to build LNG terminals fast enough to bring in the needed supplies.

"Over the last few years there has been a dramatic turnaround and now the United States is headed toward becoming a net natural gas exporter by the next decade," he said. "Whereas companies had been investing in multibillion-dollar LNG terminals to import critically needed supplies of gas, they are now investing in multibillion-dollar LNG export facilities." One of these facilities (Cheniere Energy's facility in Sabine Pass, La.) has already been permitted and could be exporting LNG within the next few years.

Ample supplies and low U.S. prices present an opportunity for North American gas producers and LNG project developers to increase exports to both Asia and Europe, where prices are significantly higher, or to the Caribbean where islands still rely heavily on oil for power, or to South American countries such as Chile, which rely heavily on LNG, Newell noted.

But the idea of LNG exports from the United States is also politically controversial, with opponents arguing that they could drive up domestic natural gas prices. "Such price increases could detrimentally affect households that consume natural gas, power producers that generate electricity from natural gas, or industries that rely on natural gas as a major input, such as chemicals producers," Newell said. "An opposing viewpoint argues that there are economic benefits of gas exportation, including the potential for job creation, improved trade balances, and more stable supply conditions for shale gas development."

The Autumn Conference is sponsored by Statoil, Norway's state-owned oil company, and held in cooperation with the Norwegian Ministry of Petroleum and Energy and the International Energy Agency. Additional featured speakers include Ola Borten Moe, Norway's minister of petroleum and energy; Fatih Birol, chief economist, International Energy Agency; and Helge Lund, president and CEO of Statoil ASA.

Autumn Conference website: