The world is experiencing a change in the paradigm of hydrocarbon production. Before we get into why that is, lets make sure we agree on what Paradigm means.
According to Merriam-Websters online the third selection for Paradigm is:
“a philosophical and theoretical framework of a scientific school or discipline within which theories, laws, and generalizations and the experiments performed in support of them are formulated; broadly : a philosophical or theoretical framework of any kind”
Oil & Gas production companies have combined a couple of new technologies together, which have unlocked previously unproductive sources of hydrocarbons.
The technology could see the US producing more oil in 2020 then it was in 1970, if the ramp up rate continues as it has of late. In the last few quarters, the US has increased its national production levels by 10%.
While that is only 500,000 barrels of oil per day, what isn’t said is that the technology is going to allow the US to scale up its its new production quickly, as this technology is unlocking new sources in already mature fields in most cases.
The US has already ramped up its Natural Gas production levels to levels unseen in modern and I am pretty sure historic times too.
That is, the US is now the largest producer of Natural Gas in the world, and that is continuing to ramp up as this technology is used to unlock natural gas wells with a large % of it production in liquids instead of gas.
The natural gas liquids are being stripped out with API’s in the 50’s and are being used as blending stocks with the heavier sour crudes produced in the Gulf of Mexico to make a WTI equivalent mixed blend.
This is allowing the US refinery’s to change up their import sourcing locations, lowering the demand for international sources.
No longer is a refinery stuck with choosing a oil source from a couple of international fields at what ever price spot price is being quoted for that location. They now have the capacity to blend up a mix of local sources to hit the sweet spot for a specific refinery.
This surge in new production will allow the mega refinery complexes in Houston and Louisiana to end their international sourcing requirements, with domestically produced hydrocarbons.
This will help to drive down local energy costs compared to international cost structures. No longer will the US have to pay for crude oil shipping costs.
In the near future, that is during the next presidential term, the US is expected to become an exporter of LNG again. This will allow the domestic natural gas markets to export their surplus supplies and get a value that is close to international crude oil prices.
Canada & the US combine should be producing more liquid hydrocarbons by 2020 then at any point in history. Currently estimates have the US and Canada increasing their supplies by up to 3 million boepd as shale and tar sand production ramps up.
That will be 3 million boepd of fewer imports, keeping money in North America verses shipping it overseas. The implications of this new production has not been fully explored yet.
The ability for the US to start to export its surplus Natural Gas production as value enhanced LNG is significant. The world expected the US to be the largest importer of LNG, when it will in fact become an LNG exporter.
If the US were to convert 10% of its current NG production, into dedicated LNG exports, it would become the largest LNG exporter in the world. This will have serious implications for nations like Russia or Iran with LNG export needs for national income.
It was only a few years ago that everyone expected the US to be addicted to energy imports, and the national security strategies where built around those assumptions. The implications that the US wont need those sources, or for that matter could be exporting cheap light sweet oil again hasn’t sunk into the public strategy’s yet.
What is clear is that the US will be saving billions of dollars in international imports, what it does with those funds, and or how those other nations react to the change in long term relationships with the US.