|
Domestic energy supplies a plus for US Consultant says deep-water oil, shale gas, declining demand give the country a great opportunity for future energy security Alan Bailey Petroleum News
On Feb. 3, in an overview of the U.S. energy supply situation, Kevin Book, managing director for research at ClearView Energy Partners LLC, told the Alaska World Affairs Council that the United States has an “incredible opportunity” to use its oil and gas resources to pull back from perpetual concerns about the country’s fiscal situation.
With excellent oil refineries, softening domestic fuel demand and significantly more undeveloped hydrocarbon resources than realized just a few years ago, the country is well placed to achieve a high level of energy security in North America, Book said.
“We are in a really good position,” he said.
US resources While Brazil, with its offshore, deepwater oil resources, is in the process of placing much of its oil industry under government ownership, the United States has major deepwater resources in the Gulf of Mexico available for development by private industry. And, although there has been much discontent with the slow pace of oil and gas permitting for the Gulf, people need to be patient with the regulatory process in the post-Macondo era of risk aversion, Book said. No one wants to take the risk of ending up on the wrong side of safety, he said.
Asked about continuing delays in Shell’s efforts to explore offshore Arctic Alaska, Book said that potential development in Alaska’s Chukchi Sea, for example, presents some particular challenges: The government is probably moving toward allowing exploration to proceed, but is moving slowly, he said.
Shale gas The so-called shale gas revolution is providing a major boost to domestic energy resources but has raised environmental questions that are driving new regulation at the state and federal levels.
“Technology got ahead of public sentiment and public policy,” Book said.
Currently, with people expressing concern about disturbance from shale gas development, states such as Pennsylvania are leading the drive for shale gas regulation. And as the regulatory effort moves to the federal level, possible mitigation mandates such as the purification of waste fracking water or new well integrity standards would push up the cost of gas production, Book said. That in turn could render some shale gas deposits uneconomic to develop. The pent up regulatory surcharge for shale gas production may be as much as 90 cents per thousand cubic feet of gas, he said.
On the other hand, North American natural gas prices are currently very low. Book said that he thinks that the U.S. should export liquefied natural gas, or LNG, from the Lower 48 as a means of boosting gas demand and achieving a stable balance between price and demand.
“Exports would be a good and stable demand support,” Book said, commenting on how the past exporting of LNG from Alaska’s Cook Inlet basin had provided stability in the gas market for that basin.
Coal closure slowed The closure of coal-fired power stations and their replacement by gas-fired stations, previously thought to be a likely prime driver of increased gas demand, has been delayed by a year or more, he said.
“It’s not going to be the salvation that the (gas) producers were hoping for, to raise the price,” he said.
Other potential drivers of increased gas demand, all subject to significant uncertainty, include gas-to-liquids technology; the production of methanol from gas; and the use of natural gas fueled trucks. Environmental Protection Agency regulation of greenhouse gas emissions from oil refineries could also shift some fuel demand to natural gas, Book said.
However, while any option for increased gas demand can improve the viability of extracting more gas from the ground, all options raise the unpopular specter of higher gas prices for end users, he said.
Renewable energy Asked about the use of non-fossil fuels in the U.S. energy mix, Book said that the cost of renewable energy is problematic. Essentially, it is cheaper to “steal” energy from the past in the form of fossil fuels than to harvest energy being generated at the present, he said. However, there is a strong case to be made for the hybridization of conventional fuels with renewable energy, a process that enables a heightened energy yield from fossil fuels, he said. And future congestion in the U.S. power grid will likely create a need for distributed renewable energy sources, he said.
Meantime, the purchase of new, more efficient cars will continue to drive a downward trend in U.S. gasoline usage, Book said. As new fuel efficiency standards kick in, gasoline consumption could drop from an estimated 130 billion gallons in 2013 to 80 billion or 90 billion gallons in 2013, he said.
Oil prices But recent high oil prices have pushed up the proportion of people’s disposable income that is spent on energy, compressing the fuel demand “shock absorber” to the point where there is relatively little remaining slack to absorb a future oil price shock. Reducing fuel usage much further to compensate for a major price increase would start to cut into the core requirements for transportation fuels, he said.
But what is the likelihood of a fuel price shock? A number of people are worrying about the possibility of some major fuel supply disruption in the current international geopolitical scenario.
While fuel demand in the United States tends to run in parallel with the country’s gross domestic product, demand in the developing world is steadily increasing, Book said. And, as the developing world’s fuel demand rises, the developing countries will become increasingly important customers of the Organization of the Petroleum Exporting Countries. Sometimes the best customers receive the best service, he commented.
On the demand side of the international oil market equation, there is some developing strain over varying fuel needs and different energy pricing between different countries that are members of the International Energy Agency. In particular, while U.S. oil demand is dropping, European demand is remaining relatively static, Book said.
Middle East However, most worries about possible supply disruption focus on the Middle East and the Iranian nuclear situation.
“This situation is not going away,” Book said. “It won’t reach peaceful resolution in any easy way without regime change in Iran.”
Although Iran has threatened to close the Strait of Hormuz, disrupting Middle East oil tanker traffic, this action would not be in Iran’s economic interests, Book said. However, talk about the possibility of the strait being closed in itself pushes up crude oil prices, he said.
Another possibility is that Iran will stop selling oil to Europe, as the country threatened to do between 2007 and 2008. But Iran’s position on this threat has weakened, given a current relatively high spare capacity in worldwide oil supplies, Book said.
On the other hand, Europe could phase down its imports of Iranian oil, thus putting upward pressure on the price of oil from other sources. That possibility was increased by the signing in December by President Obama of an order to sanction anyone doing business with the Iranian central bank, Book said.
But in reality the history of the Middle East suggests that oil supplies will probably muddle through the current situation, he said.
And, with the United States already exporting gasoline and diesel from its refineries, the country should take advantage of the situation that it finds itself in.
“If you use less energy and you produce more energy and have the best refinery fleet in the world, you suddenly have this incredible opportunity for servicing the global demand for middle distillate fuels,” Book said.
|
