Is North America the Next Middle East for Energy?
Increased production of energy from a number of sources including deepwater drilling, natural gas exploration and Canada’s oil sands could make North America the next Middle East, according to a new report from Citigroup.
The bank estimates that total North American energy production will rise from 15.4 million barrels per day in 2011 to almost 26.6 million barrels per day by 2020, boosting gross domestic product (GDP) and creating ripple effects throughout the economy.
Citigroup analysts say the U.S. will see large gains in oil production from deepwater drilling, while Mexico will begin to reverse recent declines in output. Production of shale gas liquids will increase by 3.8 million barrels per day by 2020. The report says this new production would amount to about 7 percent of additional global production, "a higher growth rate than OPEC can sustain."
That increase in energy supply will also be accompanied with a decline in demand. U.S. consumption of oil products has fallen by 2 million barrels per day since its peak in 2005, and the Citi report says demand will fall by another 2 million barrels per day over the next decade.
“The economic consequences from this supply and demand revolution are potentially extraordinary,” Ed Morse, head of global commodities research at Citigroup Global Markets and his team of analysts wrote.
Citgroup expects the shift in energy supply and demand to increase real GDP by between 2 and 3.3 percent.
It also estimates that some 550,000 new jobs will be created directly in the oil and gas extraction sector by 2020. An additional 2.2 to 2.3 million new jobs will be created from the resulting economic stimulus effects of new production by 2020.
The U.S. became a net exporter of refined oil products in 2011, for the first time since 1949, according to the Energy Department. But it remains a net importer of crude oil, importing around 9 million barrels per day.
Alejandro Barbajosa of Argus Media, a specialist data and information provider for the energy industry, says it’s unlikely that the U.S. will ever become the next Middle East because the country will remain a net importer of crude oil for the foreseeable future. He also says infrastructure constraints will limit the country’s ability to export liquefied natural gas.
“There is no way in this world that it could become the largest energy exporter,” Barbajosa told CNBC.
“As U.S. oil demand declines because of more efficient use, the U.S. will still remain dependent on imports from Canada, and to a lesser degree, the Middle East,” Barbajosa added. “North America does not have the capacity surplus that the Middle East has. It is unlikely that it becomes the next Middle East in terms of oil and gas exports.”
In its analysis, Citigroup acknowledges infrastructure bottlenecks and legislation that blocks exports of crude oil of U.S. origin. It also points out that new environmental regulations could prevent the scenario from playing out. But the analysts point out the surge in energy production could be game-changing.
"It would not only improve incomes and create jobs, but also improve national energy security and reverse perennial current account deficits."