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Weekly Analysis

Tight Oil Boom Is Changing The World
FNArena News - November 21 2012

By Rudi Filapek-Vandyck, Editor FNArena

We live in a time of inflated hyperbole. Every problem immediately turns into a "cliff" or some other portend of doom and gloom scenarios for the global economy.

However, if my recent fact finding mission through Asia and the US is anything to go by, the term "revolution" to describe what is taking place in today's energy sector is more likely to prove an accurate label and the global community is going to be surprised by its many consequences in the decade ahead.

FNArena has repeatedly made the extra effort in years past to highlight the new developments that are taking place around the world and that will, at some point, herald a new era for the energy sector in which natural gas will play an increasingly bigger role. The last time I personally zoomed in on the emerging new gas markets was in the closing week of June, in a Weekly Insights titled "The Next Revolution Is Already Here".

However, it appears we have been too focused on the gaseous side of the shale technology revolution that is reshaping the future of energy in the US right now. Shale gas will continue to impact on the world's energy mix but shorter term the largest impact will be felt through the liquids side of that same technological breakthrough. To avoid any confusion with gas, the shale extraction of liquids has been labeled "tight oil". Same base technology, only the output (oil) is different (plus the liquids extraction is more complicated).

Tight oil has already taken everybody by surprise, including those at the forefront of new developments inside the oil industry. As one industry veteran put it at a recent conference in the US: it was only a few years ago that everybody inside the US oil industry was talking about how to best create value in an industry that was essentially without growth. Today, that dynamic has completely reversed and everybody is getting excited again about the new growth prospects for oil.

This truly is one dramatic change that is going to dominate the decade ahead: for the world, not just for the US.

The International Energy Agency (IEA) jumped on these new developments last week by predicting US oil production is poised to exceed Saudi Arabia's by 2020-2025. The news made a big impact in the US as The Wall Street Journal highlighted the news on the front page in big bold script.

Whether the prediction will be proved correct or not (many remain skeptical), fact remains the US and Canada together now have the tangible prospect of becoming fully energy self-sufficient before the end of the decade and that is something nobody saw coming. Oil production in the US had been on a downward slope since the seventies. Now the country's oil production from both conventional and non-conventional sources is this year projected to grow to the highest output level since 1991, with projections for further strong growth in place for the years ahead.

Today, Saudi Arabia produces some 9.8m barrels a day while US production currently does not reach beyond 6.7m barrels a day. According to some projections, tight oil can potentially add 5m barrels a day for the US by 2023. Including biofuels the US could well produce 12m barrels a day by 2020, according to some studies. The days of Saudi Arabia being the main oil supplier for the US are long gone and neighbour Canada nowadays supplies close to 30% of total US imports, but Arab oil dependency remains very much a feature in the psyche of the general US consumer.

It is now estimated the US can potentially reduce its imports from Arab countries to zero over the next four years.

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Our archive tells no lies. FNArena warned its readers well before the price of crude oil peaked in 2008 the speculator bubble would deflate with devastating consequences for those holding oil company shares. In August we warned the most severe correction in modern history was forthcoming for natural resources. In 2007 we warned the problem with US subprime mortgages would prove much bigger than experts and media were anticipating (among other things).

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