26 July 2012 – After decades of largely unsuccessful policy attempts by the USA to reduce its energy import dependence, imports are now in structural decline the New York based PIRA Energy group says in a study called the Road to US Energy Independence. On top of declining demand, PIRA sees a structural shift in supply trends resulting from a combination of continued progress in drilling technology, the creativity of upstream entrepreneurs in utilising that technology, and a price level that has made pursuit of these opportunities economically attractive.
Natural gas fracking has led the way, but the revolution has now moved on to liquids, both crude and natural gas liquids (NGLs). While the USA is likely to remain an importer for some time, the volumes will be in decline and the composition will be rapidly changing. In sum, PIRA believes that much of the conventional wisdom regarding pricing parity, crude and product flows, refining behaviour and even energy policy may no longer be true in this new US energy world.

It sees parallels between shale gas and shale oil becoming more striking by the month. While their scale is still much smaller and the market is global rather than regional, liquids are certainly a game changer for North America and possibly for the world. PIRA’s forecast of shale crude growth has been revised up dramatically over the past several years. Prospects for Bakken and Eagle Ford have been revised up, and over time, production from shale plays currently known and still to be discovered will account for a greater share of growth. The upside potential from new discoveries is probably greater than the downside if crude prices remain at or above current levels.

Not only will the volume of crude available domestically in North America change dramatically, the quality will as well, as crude from these shales is generally of similar quality to WTI. Growth in the US liquids outlook will not be from crude alone. NGLs from both oil and gas drilling will also contribute significantly to US liquids growth. The combination of anticipated growth in liquids production, coupled with essentially flat domestic demand, will lead to a structural decline in imports.

The national security arguments supporting biofuels, fuel efficiency mandates, and renewables will be further weakened by the fact that a growing share of the declining imports will come from Canada. Strong liquids growth will take place in Canada, driven by growing oil sands production and the country’s own shale liquids developments. Production from oil sands is expected to grow about 100,000 barrels a day per year average out to 2015, then at a faster rate up to a total of about 3.6 million barrels a day by 2025.

When balances for the US and Canada are combined, it is plausible that North America could be a net liquids exporter to the world sometime next decade and net exporters of natural gas within the next five years. Imports into the US gulf coast will shrink, with imports of light and medium crudes essentially disappearing.

Pipeline capacity out of Cushing will be sufficient to prevent bottlenecks there by mid-2013.  However, bottlenecks may move upstream of Cushing. NGL production will be growing dramatically. US propane production is expected to grow rather rapidly and will outpace projected domestic demand.  To accommodate this likely growth in supply, the US will become a more extensive exporter.