Issue link: http://read.dmtmag.com/i/141651
An Industry Being Transformed by Technology and Politics PRESIDENT'S POST 6 T echnological advances in hydraulic fracturing and horizontal drilling pioneered by entrepreneurial small and mid-size companies have opened up shale oil and gas reserves that were not previously viable. As a result of this transformational technology, U.S. crude oil production is on course to be about 50 percent higher this year than in 2008. Many analysts are now predicting that North America (the U.S., Canada and possibly Mexico) could become a net oil exporter by the end of this decade. The International Energy Agency is now forecasting that the United States could overtake Saudi Arabia to become the world's largest oil producer in five years. Just five years ago, the United States was importing approximately two-thirds of its daily oil consumption. This figure has been cut in half, and the U.S. is now importing only one-third of its daily consumption. It is worth remembering that U.S. oil production has been rising for just four years, after falling for almost four decades. Mr. Bob Profusek, head of global M&A at Jones Day law firm and independent director of Valero Energy, says, "The shale revolution is the biggest change to hit the industry for 50 years. In the economy as a whole, it is as transformational as the Internet." To varying degrees, similar ideas are being discussed across the entire western hemisphere, from Alaska to Argentina. In Canada, the oil sands industry of Alberta has faced political opposition, because of its environmental impact, and economic pressure, because of rising costs caused by the attempt to deliver tens of billions of dollars' worth of investment in a relatively small area around Forth McMurray. Nevertheless, output has grown and is expected to continue to grow through the end of the decade and beyond. Canada is now developing its own shale oil and gas reserves. The prospect of being able to export liquefied natural gas to Asia from British Columbia on Canada's west coast has attracted not only the leading western oil groups, including Royal Dutch Shell, Chevron and Exxon Mobil, but also leading Asian companies, including Petro China and Mitsubishi of Japan. In South America, spectacular oil discoveries have been made off the coast of Brazil, deep below the seabed in what is known as the "pre-salt" layers of rock, that have transformed expectations about the country's role in the global market for crude. The other great hydrocarbon success story of the continent has been Colombia, where, helped by improving security and declining violence, oil production has doubled since 2007. Colombians also have taken advantage by hiring many professionals Roger Terán in the field from VenezuIDA President 2011-13 ela. These individuals are eager to leave Venezuela's state oil company, PDVSA, and the country, as a result of the never-ending persecution of anyone who opposes Chavez's cronies. Ecopetrol, Colombia's national oil company, has been privatized and occasionally has edged ahead of Petrobras of Brazil to become Latin America's largest listed company by market capitalization. In Mexico, great excitement exists over the potential of oil and gas reserves, which the country believes are as large as Kuwait's. There is also rising optimism that international companies may be able to gain access to these reserves. President Enrique Peña Nieto, who took office last December, is expected to propose a change to the country's constitution, which currently forbids foreign companies from owning any Mexican oil reserves, to allow them to set up joint ventures with Pemex, the national oil company. Mexico's oil output has fallen approximately 25 percent over the past 10 years, and the head of Pemex sees foreign investment as the way to turn the situation around. The only significant exception to expectations of rising hydrocarbon output in the Americas is Venezuela, which, ironically, is the holder of the world's largest oil reserves. The death of Hugo Chavez, the country's demagogic socialist president, briefly sparked speculation that a change of government might change Venezuela's confrontational stance toward foreign oil companies. Unfortunately, the illegitimate victory of Nicolas Maduro last April put any hope on ice. Evidently, in economic terms this energy focus is a game changer with huge geopolitical consequences for the United States and the world. There will also be negative and positive business and environmental consequences. There will be plenty of jobs creation, new investments, huge profits and tax revenues. The concerns of spills and rising greenhouse emissions should be offset to some degree by the substitution of coal for gas in power generation. The most significant business opportunity could be the export and transfer of America's know-how to other countries with abundant shale beds. Roger Terán IDA President IDA UNIVERSAL July-August 2013