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Fracking changes market landscape

Energy Outlook

Last updated: Sunday, October 13, 2013 12:11 PM


Syed Rashid Husain


Late last year, when the energy guru Fatih Birol, while presenting the IEA World Energy Outlook 2012 asserted that the energy world was undergoing a major transformation – he also presented a timeframe for the revolution to materialize. Peaking in 2020, US crude production would overtake Saudi Arabia by 2017, he then projected. 

He added that over the next few years, traditional gas producers too would lose their market influence. “They would be losing market share in the coming years.” Citing figures, he pointed out that over the next three years, the US was destined to outpace the largest gas producer – Russia - too.

The forecasts are coming true – albeit – much earlier than projected. Making projections, looking into the energy crystal ball, is a hazardous profession. Interestingly, Fatih has adopted this as a profession.
The US is now destined to end 2013 as the world’s largest producer of petroleum and natural gas, surpassing Russia and Saudi Arabia, the US Energy Information Administration (EIA) is now saying. And this happens despite Russia’s considerable untapped unconventional gas reserves, as the energy giant struggles to maintain output. The IEA is now conceding the same. “With output of more than 10 million barrels per day for the last two quarters, its highest in decades, the nation is set to become the largest non-OPEC liquids producer by the second quarter of 2014, overtaking Russia. And that’s not even counting biofuels and refinery gains,” the IEA said. It estimated that US liquids production to average 11 million bpd in 2014 versus 10.86 million in Russia.

And as per the EIA, while the US produced the equivalent of about 22 million barrels a day of oil, natural gas and related fuels in July, the combined US petroleum and gas production was projected to hit 50 quadrillion British thermal units, or 25 million barrels of oil equivalent a day in 2013, outpacing Russian production by 5 quadrillion Btu. Moscow’s forecast for 2013 oil-and-gas production works out to about 21.8 million bpd. Petroleum production includes crude oil, natural gas liquids, condensates, and biofuels.

The US was roughly even with Russia as the top producer in 2012 of the petroleum and gas fuels combined. Yet it was still lagging behind the long time global crude leader Saudi Arabia, then.
But the catch up game is now on!

Russia produced an average of 10.8 million barrels of oil and related fuel a day in the first half of this year. That was about 900,000 barrels a day more than the US — but down from a gap of three million barrels a day a few years ago.

As of July, Saudi Arabia was pumping 11.7 million barrels a day, according to the IEA. Russia was second, at 10.8 million barrels, while the US was third, at 10.3 million. Each of the three pumps more than twice the daily output of such major producers as Canada, Venezuela and Nigeria.

And in the meantime, the amount of crude from two of the hottest plays in the US—the Bakken oilfield in North Dakota and the Eagle Ford shale formation in South Texas— continues to rise rapidly, as the exploitation of shale-based reserves by the “controversial” fracking techniques has rocketed in the meantime.

Since 2008, US petroleum production has increased 7 quadrillion Btu, with “dramatic” growth in Texas and North Dakota, the EIA said. US natural gas production too has risen 3 quadrillion Btu over the same period. And in the meantime, Russia and Saudi Arabia each increased their combined petroleum and natural gas production by about 1 quadrillion Btu since 2008.

In contrast, top producer Russia’s output has increased only modestly over the past three years. The Russian government predicts oil output will remain flat through 2016, while natural gas would tick up by a meager 3 percent.

And thus the US is soon to be crowned as the top global energy producer.

This is indeed a big moment in the US energy timeline. “This is a remarkable turn of events,” EIA head Adam Sieminski is asserting. And indeed none can deny. “This is a new era of thinking about market conditions, and opportunities created by these conditions, that you wouldn’t in a million years have dreamed about.”

How true indeed!

And while we are witness to a major global realignment, China is taking up the mantle of being the “largest oil importer” – dethroning the US from top slot.

Driven by faster economic growth and strong auto sales, China surpassed the United States in September as the world’s biggest net oil importer, just released U.S. government data confirm.

Chinese oil consumption outstripped production by 6.3 million barrels per day, which indicates the country had to import that much to fill the gap, the Energy Information Administration said.

In September, America used 18.6 million barrels per day of oil and other liquid fossil fuels, while China used 10.9 million, according to the EIA’s Short-Term Energy Outlook. US production was 12.5 million barrels per day, while that of China was 4.6 million.

However, it is interesting to mention here that the United States, with a population about one-third the size of China’s, still consumes far more oil per person than China - the global manufacturing house - does.

Until the late 1990s, China supplied its oil needs from domestic sources including the vast Daqing field in the northeast. But the economic boom outstripped its production capacity while output from existing sources is forecast to decline. That has forced China to rely more heavily on imports, especially from Saudi Arabia and Iran.

Roles are getting switched. Global energy geopolitics is undergoing a major metamorphosis – as manifested by recent regional political developments. After all, Washington is no more that dependent on Middle Eastern crude supplies – as it was until a few years back.

The energy world is changing!

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