Meanwhile, there is a boom in North American energy that may be one of the biggest stories in the global economy, even though we haven't really felt the positive impact in the US; not yet anyway. The boom is related to the shale exploration in the US and the oil sands fields in Canada.
A new report from the International Energy Agency, the IEA, discusses the consequences of the boom, and they are looking at this as a boom. The report describes the US supply "shock" as that is sending "ripples" throughout the world, affecting every aspect of the market.
The supply shock created by a surge in North American oil production will be as transformative to the market over the next five years as was the rise of Chinese demand over the last 15, the International Energy Agency (IEA) said in its annual Medium-Term Oil Market Report (MTOMR) released today. The shift will not only cause oil companies to overhaul their global investment strategies, but also reshape the way oil is transported, stored and refined.
According to the MTOMR, the effects of continued growth in North American supply – led by US light, tight oil (LTO) and Canadian oil sands – will cascade through the global oil market. Although shale oil development outside North America may not be a large-scale reality during the report’s five-year timeframe, the technologies responsible for the boom will increase production from mature, conventional fields – causing companies to reconsider investments in higher-risk areas.
In virtually every other aspect of the market, developing economies are in the driver’s seat. This quarter, for the first time, non-OECD economies will overtake OECD nations in oil demand. At the same time, massive refinery capacity increases in non-OECD economies are accelerating a broad restructuring of the global refining industry and oil trading patterns. European refiners will see no let-up from the squeeze caused by increasing US product exports and the new Asian and Middle Eastern refining titans.
“The good news is that this is helping to ease a market that was relatively tight for several years. The technology that unlocked the bonanza in places like North Dakota can and will be applied elsewhere, potentially leading to a broad reassessment of reserves. But as companies rethink their strategies, and as emerging economies become the leading players in the refining and demand sectors, not everyone will be a winner.”
While geopolitical risks abound, market fundamentals suggest a more comfortable global oil supply/demand balance over the next five years. The MTOMR forecasts North American supply to grow by 3.9 million barrels per day (mb/d) from 2012 to 2018, or nearly two-thirds of total forecast non-OPEC supply growth of 6 mb/d. World liquid production capacity is expected to grow by 8.4 mb/d – significantly faster than demand – which is projected to expand by 6.9 mb/d. Global refining capacity will post even steeper growth, surging by 9.5 mb/d, led by China and the Middle East.
Now, when you look at this energy boom, you might think this would be a real positive for US manufacturing. We just haven't seen it yet, and we might not. There has been talk about a renaissance in US manufacturing, and factory output continues to rise, but the truth is that manufacturing has dropped to just 9% of jobs, and in the last month, there were no new manufacturing jobs added. For every $1 of manufacturing output in a community, there’s another $1.48 of wealth created. And there has been a push for new manufacturing jobs which unfortunately has been hampered by austerity measures out of Congress. Any strength we've seen in manufacturing is probably just a short-term bounce reflecting more the relative weakness of Europe and Japan. Lower energy prices might help, but not yet. The ability to make things is fundamental to the ability to innovate things over the long term. When you give up making products you lose a lot of the added value.
Maybe we are on the leading edge of a new oil and natural gas boom in this country, but one thing we'll need to get there is water.
Water and energy are inextricably linked.