INSIGHT: US oil independence not achievable, says CERI report

14 August 2013 16:26 Source:ICIS News

By Nigel Davis.

LONDON (ICIS)--US manufacturers, chemical producers among them, know that North America needs to muster all its infrastructure resources to take full advantage of the shale oil and gas boom.

That is why they have become so frustrated with the approval process for the controversial Keystone XL pipeline, which would move crude from the oil sands in Alberta in Canada to consumers in the US Midwest and the Gulf Coast.

A decision on the 1,700-mile (2,735 km), $7bn (€5.4bn) Keystone XL project, which involves building a 36-inch (91 cm) pipeline across five US states, has been pending since 2007 but is expected from the Obama administration this year.

The pipeline would be a vital link helping to maintain the momentum of a re-energised US manufacturing economy, protagonists suggest.

In Canada, the link is seen as vitally important to the future of its oil industry.

Adding infrastructure, including rail lines where oil pipelines are not available, will keep crude flowing and help Canada build on its position as the major non-OPEC exporter of crude to the US.

The shale oil and gas boom may have boosted the nation’s energy security but not the need for imports.

“Oil independence from foreign imports is not achievable either in the continental United States context or the North American context,” a report from the Canadian Energy Research Institute (CERI) claimed this month. “In the North American context, after accounting for Mexican and Canadian import volumes, the United States still requires 2,000,000 bbls per day of crude imports to meet demand which would be sourced from OPEC and non-OPEC sources,” the study, which looks out to 2022, suggested.

The next five years will be critical for Canada as the influence of the exploitation of tight oil and of shale gas on the transportation sector in the US becomes better established.

But a lessened dependence in the US on OPEC crude imports potentially opens a window of opportunity for more Canadian oil to flow south.

Energy conservation and the conversion of more vehicles to run on natural gas could offer savings of 1-2m bbls/day CERI says.

“However, the rate of adoption within the transportation sector is slow and in all likelihood will not be achievable until well into the next decade.”

Shale deposits in North Dakota, Texas, Colorado and Ohio have the potential to add 2.4m bbls/day of new crude production by the end of this decade. But, CERI notes, conventional oil production onshore in the US and in the Gulf of Mexico are declining “resulting in a potential loss of 1.5 million barrels per day, also by the end of the decade”.

The political buzz in Washington may be for oil self-sufficiency within the next 10 years, but the CERI trends study suggests otherwise.

Certainly, imports have trended downward, falling from a high of 10bn bbls/day in 2005 to 8.3m bbls/day currently. US oil production is close to 7m bbls/days.

But the harder you look, the more it becomes apparent that the US will need to ensure that its supply routes from Canada and also from Mexico are enhanced.

Canada’s crude oil and bitumen supplies have the potential to make up some of the national production shortfall.

Canada currently delivers in excess of 2.3m bbls/day of crude oil, bitumen and synthetic crude oil to the US. Oil sands production growth plus conventional oil production potential from Western Canada could result in 1-2m “new” barrels of oil looking for a market, possibly the United States,” CERI says.

Its projections assume the Keystone XL pipeline is laid and operates at full capacity and that enhancements are made to the Enbridge pipeline system that delivers most crude from Canada to the US. It also expects more supply and demand side railroad to be laid.

“For Canada, the potential for expanded exports to the United States is of significant interest to industry and governments based on the difficulties pipelines are having in accessing global markets for Canadian energy,” CERI added.

By Nigel Davis