Citigroup: US will achieve Energy Independence in 5 years

[jimmy olsen]

Canada doesn't really count as foriegn.

USA! USA!

http://www.nbcnews.com/business/economywatch/us-fast-track-energy-independence-report-suggests-1C8344034

US is on fast-track to energy independence, report suggests

U.S. oil and gas production is evolving so rapidly — and demand is dropping so quickly — that in just five years the U.S. could no longer need to buy oil from any source but Canada, according to Citigroup's global head of commodities research.

Citigroup's Edward Morse, in a new report, projects a dramatic reshaping of the global energy industry, where the U.S., in a matter of years, becomes an exporter of energy, instead of one of the biggest importers.

The shift could sharply reduce the price of oil, and therefore limit the revenues of the producing nations of OPEC, as well as Russia and West Africa. Those nations face new challenges: Not only are the U.S. and Canada increasing output, but Iraq increasingly is realizing its potential as an oil producer, adding 600,000 barrels a day of production annually for the next several years.

"OPEC will find it challenging to survive another 60 years, let alone another decade," the report by Morse and other Citi analysts said. "But not all of the consequences are positive, for when it comes to the geopolitics of energy, the likely outcomes are asymmetric, with clear cut winner and losers."

Read More: The World's 15 Biggest Oil Producers

The U.S. is a winner in many ways. Its super power status could be prolonged because of this new growth in oil and shale gas production, made possible by "fracking" and other non-conventional drilling technologies.

Crude oil generated the largest single annual increase in liquids production in U.S. history last year, with an increase of 1.16 million barrels per day. Oil production is booming in places like Texas and North Dakota, which has the lowest unemployment in the country at just 3 percent last September, compared to the national rate of 7.8 percent then.

Citi analysts also foresee a new era of U.S. industrialization, fueled by cheaper power. They cite dozens of industrial projects across America that have already begun or are planned, in such industries as auto, chemicals and steel.

Read More:Winter Storm May Stall Gas Price Climb

The oil producing nations of OPEC, and others, will have to adjust to a world of lower prices.

Brent crude, the international benchmark, could trade in a new lower range of $70 to $90 per barrel by the end of the decade, from its recent range of $90 to $120 per barrel, Citi projects. That would be below the break-even levels required by many producing countries. The price required by Saudi Arabia is $71, and Kuwait is $44 per barrel, but many other countries have break-even levels of $110 or greater.

"This is a momentous year for what's happening, and we're having almost two million barrels a day of pipeline capacity built out in the U.S.," Morse said on "Fast Money." "The U.S. is actually going to push out about 700,000 barrels a day of light sweet crude imports this year. We think as a result of that, plus production elsewhere, we think the price is going to average, by the time you get to December, $10 less than where it is right now."

As the U.S. and Canada rise, some oil producing countries could face the threat of becoming "failed states" as their leadership grapples with greater pressure for economic and political reform while resource revenues decline, the report said. Others, especially China, could make up for some of the demand, but not all.

"Nigeria, the picture is fairly bleak. Venezuela is pretty bleak," Morse said.

As for Russia, "if it is the case that what is now a $90 Brent floor price becomes a $90 Brent ceiling price, given the dominance of hydrocarbon exports in Russian revenue, there could be a three percent hit to GDP which is by no means insignificant over the next five years, because that's how critical hydrocarbons are," he said. "Here you have a country that requires, on its own public record, $117 per barrel Urals crude, on average, to balance their budget. If the price of oil collapses to only as low as $90 a barrel, it does have that order-of-magnitude effect."

At the same time, Citi sees a big impact on the U.S. economy. The current account deficit is about 3.2 percent of GDP, and the oil import bill is 1.7 percent of GDP. Citi expects that energy self-sufficiency, combined with the impact of low natural gas prices, could cut the current account deficit by up to 2.4 percent of GDP, with an associated improvement in the dollar of 1.6 to 5.4 percent.

To realize this production boom, the energy industry's near-term challenge is moving the U.S. and Canadian oil that is locked in the heart of the continent because of insufficient pipeline transportation. Citi expects that to improve but in the meantime, the railroad industry is helping pick up the slack, shipping U.S. crude across the continent, and creating big demand for rail tanker cars.

Interdependent North America
The Citi report, titled "Energy 2020: Independence Day," also projects a larger and quicker decline in demand for oil in the U.S. over the next decade or two, due to efficiency and the shift to cheaper natural gas.

For instance, Citi expects 30 percent of the U.S. heavy duty truck fleet to turn to natural gas-based fuel by 2015, well above the 10 percent it previously forecast. That would reduce diesel demand by an estimated 600,000 barrels per day. It also expects new automotive efficiency standards to reduce U.S. oil production by two million barrels per day, up from the one million forecast last year.

"Starting this year, North American output, as we indicate in this report, should start to have tangible impacts both on global prices and trading patterns, and will eventually turn the global geopolitics of energy on its head," the report said.

Morse surprised markets a year ago with a report that envisioned the U.S. as part of an energy independent North America. Since then, the view has become mainstream. The International Energy Agency forecast last fall that the U.S. will overtake Saudi Arabia and Russia as the top oil producer by 2017. The IEA also forecast that North America could become a net oil exporter by around 2030 and the U.S. could become nearly self-sufficient by 2035.

Morse's latest report, released Tuesday, has an even more aggressive view of the U.S. move to dominance as an energy producer.

If crude oil and field condensates, natural gas liquids, renewable fuels and refinery processing gains are counted, the report put U.S. production at 11.2 million barrels per day at the end of 2012, making the U.S. the biggest oil producer already last year.

Canadian production is expected to increase to 6.5 million barrels per day, and even Mexico is now expected to join the North America energy renaissance under a new government interested in exploiting its resources.

In the past six years, oil imports into the United States have been cut in half, after peaking in 2006.

"The numbers are striking. The month of peak was 12.6 million barrels a day in October 2006 and ... now it's under six, and by late 2012 totaled 6.8 million bpd," Morse said in an interview.

Since 2006, U.S. oil field production of crude, plus natural gas liquids and bio-fuels has grown by three million barrels a day, about the same as the total output of Iran, Iraq, or Venezuela. In the same period, Canadian production has grown by 510,000 barrels a day.

"The impact of this extraordinary production growth is becoming increasingly apparent and even if the growth rate subsides in the years ahead the mushrooming impacts of this growth will have dramatic impacts," the report said. "A half decade from now combined US and Canadian output will be in surplus of projected needs. Over the next five years, demand for natural gas in the US should catch up with supply, opening up unexpected opportunities in transportation and igniting a re-industrialization of the country."

Morse, in an interview, said the U.S. could in theory need to import only from Canada within five years. "Our projection of U.S. supply growth and U.S. demand collapse is to levels where the U.S. will not need to import oil from any other country except for Canada," he said.

He expects to see a fight for market share in the U.S. and the ultimate result will be that the U.S. could re-export some Canadian crude. "But technically there should be no room for anyone else's crude," he noted.

But this does not mean the U.S. will be immune to price spikes, even with its growing supply. "Disruptions actually affect the price of oil globally and the more integrated we are in the world oil economy, the more we're going to be impacted by it. If there's a price spike, we're going to feel the price spike but the weight of our production is going to make that prices pike come from a much lower base in the future than it is now," Morse said on "Fast Money."

2013 — a year of change
U.S. oil has been landlocked in the Midwest, lacking a strong transportation system to bring supply to refining areas. A hodge podge of pipeline and rail transport has taken over, as the industry awaits further pipeline development, including the stalled Keystone pipeline.

But Citi points out that 2013 brings big change, what it calls "the most dramatic year of change ever in light sweet crude flows." Pipeline capacity in the U.S. will expand by 1.7 million barrels a day, and up to 600,000 barrels of new rail capacity will be opened between the U.S. and Canada. The report said there is an expected near doubling of receiving capacity of rail-shipped oil from 2012 to 2013.

The industry has innovated where necessary. Lacking pipelines, over half the North Dakota crude production, of 480,000 barrels a day at the end of 2012, was estimated to have been moved by rail. Much of it went to St. James, La., and Port Arthur, Texas and Mobile, Ala. Bakken is also being railed to facilities in Albany, N.Y., and New Brunswick, Canada.

The report also points out the big backlog in rail cars, many of them tank and hopper railcars. Citi said American Railcar Industries last fall said backlog for rail-cars at the end of September was 61,400, and 75 percent were tank rail-cars. Tank rail-cars transport materials like crude, chemicals, propane ethanol and asphalt.

Independent North America
The report describes how shipments of oil from West Africa have been waning and as early as this summer, West African crude shipments into the U.S. Gulf Coast could be unnecessary. East Coast refiners could also decrease dependence on West African crude, replacing more imports with midcontinent oil, brought in by rail from Pennsylvania and Virginia to upstate New York and New Jersey. That would also have a likely impact on gasoline prices, currently at record highs for this time of year because of refining issues.

There is also pressure to move light sweet crude from the Gulf Coast to higher value locations. For instance, Morse expects to see light sweet crude move form the U.S. Gulf Coast to eastern Canada, displacing more West African imports to North America.

Citi expects that within two years, there could be pressure for more exports to other destinations or for pipelines on the East Coast or to change laws that would allow shipping of crude from the Gulf Coast to the East Coast by non-U.S. flagged ships.

By the end of 2014, Citi expects that sour Canadian crude should make its way to the Gulf Coast by way of new pipelines and that should provide a challenge for other producers shipping to the Gulf Coast, including Saudi Arabia, Iraq, Kuwait , Venezuela and Mexico. Morse says they could be pushed out by Canadian crude, or these producers could preserve market share by cutting prices.

Canadian and U.S. crude should be delivered in greater quantities to the U.S. East Coast and Gulf Coast by mid-decade. A happenstance of poor transportation for all this energy wealth leaves Canadian crude locked in North America, but with exporting ability through the U.S. Gulf Coast until pipelines are approved and built in Canada. Morse said if that were to happen, Canada could see an export boom to the Pacific basin, turning Canadian crude into the benchmark for that region.

The report notes that even before Canada builds pipelines to the Pacific: "There should be exports of crude from the U.S. Gulf Coast -- Canadian crude for sure and potentially U.S. crude if the U.S. succumbs to economic logic and lifts current multiple bans on exports," the report said.

Asked how his report has been received so far, Morse said, with an ironic laugh, that he's had some "push back but not as much as last year."

[Valmy]

Good.  Then we can screw with the Arabs and not fear their wrath.

[derspiess]

Yeah, take Citigroup's word for it

[HVC]

Crap, Canada's gonna get invaded.

[Neil]

Yeah, take Citigroup's word for it

I was gonna say...

[Valmy]

Yeah, take Citigroup's word for it

Nobody who sponsored the Rose Bowl Vince Young played in could be wrong.

[derspiess]

Yeah, take Citigroup's word for it

Nobody who sponsored the Rose Bowl Vince Young played in could be wrong.

My wife works there, so yeah I *want* to like them.  Just kinda hard to.

[CountDeMoney]

Yeah, take Citigroup's word for it

No shit, right?

[LaCroix]

any article that references north dakota is a-okay in my book

[jimmy olsen]

Wow! By 2015, every time projections are updated, they move the date up!

http://www.bloomberg.com/news/2013-11-12/u-s-nears-energy-independence-by-2035-on-shale-boom-iea-says.html

U.S. to Be Top Oil Producer by 2015 on Shale, IEA Says
By Grant Smith - Nov 13, 2013 1:47 AM GMT+0900

The U.S. will surpass Russia and Saudi Arabia as the world's top oil producer by 2015, and be close to energy self-sufficiency in the next two decades, amid booming output from shale formations, the IEA said.

Crude prices will advance to $128 a barrel by 2035 with a 16 percent increase in consumption supporting the development of so-called tight oil in the U.S. and a tripling in output from Brazil, the International Energy Agency said today in its annual World Energy Outlook. The role of the Organization of Petroleum Exporting Countries will recover in the middle of the next decade as other nations struggle to repeat No

"As production goes up and imports go down, it does have positive macroeconomic effects for the U.S.," said Mike Wittner, head of oil research at Societe Generale SA in New York. "It's good for the balance of payments, good for the dollar, good for jobs, for other heavy industries. But it doesn't equate to being insulated from world oil markets."

Soaring shale output in the U.S. is helping the world's largest oil consumer achieve its highest level of energy independence in two decades, cushioning it against disruptions in Africa and the Middle East. The boom threatens revenues for OPEC's 12 members, whose production is at its lowest in two years amid political unrest in Libya and theft in Nigeria.
Biggest Producer

U.S. oil production will rise to 11.6 million barrels a day in 2020, from 9.2 million in 2012, as it taps rock and shale layers in North Dakota and Texas with the use of horizontal drilling and hydraulic fracturing, according to the IEA, a Paris-based adviser to 28 energy-consuming nations. The report didn't specify an output level for 2015.

Over the same time period, Saudi Arabian production will fall to 10.6 million from 11.7 million and Russia slips to 10.4 million from 10.7 million barrels. The figures include natural gas liquids, condensates and crude.

U.S. output will plateau after 2020 and the nation will lose its top ranking at the start of the 2030s, the IEA said.

"We do not expect this trend will continue after 2020s," Fatih Birol, the agency's chief economist, said in London today. "It will come to a plateau and decline as a result of the limited resource base of light tight oil."
WTI Prices

U.S. crude production rose to 7.896 million barrels a day in the week ended Oct. 18, the most since March 1989, according to the Energy Information Administration. West Texas Intermediate futures dropped as much as 83 cents to $94.31 a barrel in trading today on the New York Mercantile Exchange and were $94.58 as of 4:11 p.m. in London.

Related: WTI Crude Falls to 5-Month Low as Discount to Brent Grows

Global oil demand will expand by 14 million barrels to average 101 million a day in 2035, according to the IEA report. The share of conventional crude will drop to 65 million barrels by the end of the period because of growth in unconventional supplies, the IEA said without providing current data.

The concentration in global oil trade will continue to shift to the Asia-Pacific region from the Atlantic Basin, as China is on the verge of becoming the world's biggest oil importer, the report showed. India will displace China as the biggest driver of energy demand growth after 2020, the IEA said.
Refinery Closures

Expanding refinery capacity in Asia and the Middle East along with reduced demand in many developed nations is intensifying the pressure for plants to close, the agency said.

The IEA estimates that almost 10 million barrels a day of oil processing capacity is "at risk" by 2035, with refineries in Europe in particular the most vulnerable, it said. This equates to about 10 percent of current global capacity, based on data compiled by Bloomberg on more than 700 sites worldwide.

Brazil will triple output to 6 million barrels a day by 2035 as it exploits deep-water reserves, an expansion that will account for one-third of the increase in global production and make the nation the world's sixth-largest oil producer, according to the agency.

While North American shale, coupled with rising production in Brazil and global supplies of natural gas liquids, will dominate output growth over the next 10 years, OPEC, and its Middle Eastern members in particular, will regain importance after that as supplies from outside the organization falter, according to the report. OPEC pumps about 40 percent of global oil supplies.
Not Stirred

"The U.S. moves steadily towards meeting all of its energy needs from domestic resources by 2035," the IEA said. "But this does not mean that the world is on the cusp of a new era of oil abundance. Light, tight oil shakes the next 10 years, but leaves the longer term unstirred. The Middle East, the only large source of low-cost oil, remains at the center of the longer-term outlook."

OPEC's members are Algeria, Angola, Ecuador, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, the United Arab Emirates and Venezuela. It will next meet to review production targets on Dec. 4 in Vienna.

More than half of the 790 billion barrels the world will need to produce by 2035 is needed to compensate for declining output from mature deposits, the agency said. Output declines at a rate of 6 percent a year at conventional oil fields once they reach peak production, according to the report.

[Razgovory]

Well, I've noticed gas prices have been falling.

[Phillip V]

Fossil fuels are saving America.

[Grey Fox]

Yay!

We'll have gas but no clean water. Just like the midwest.

[Eddie Teach]

Yay!

We'll have gas but no clean water. Just like the midwest.

Get the bottled stuff then.

[Grey Fox]

Sure, let's give more money to Coke & Pepsi.