PIRA Energy Group to Release a Study on U.S. Energy Independence and the Shale Revolution

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NYC-based PIRA Energy Group will release a study this summer entitled, "The Road to U.S. Energy Independence: The Shale Revolution and Its Implications for North America's Energy Markets," which will address the complex implications for North American pricing parity, crude and product flows, refining behavior and energy policy that are arising from increasing oil and gas production and falling imports.

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When balances for the U.S. 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 5 years.

NYC-based PIRA Energy Group will release a study this summer entitled, "The Road to U.S. Energy Independence: The Shale Revolution and Its Implications for North America's Energy Markets," which will address the complex implications for North American pricing parity, crude and product flows, refining behavior and energy policy that are arising from increasing oil and gas production and falling imports.

After decades of largely unsuccessful policy attempts to reduce U.S. energy import dependence, imports are now in structural decline. 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 utilizing 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 NGLs. And while the U.S. 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 behavior and even energy policy may no longer be true in this new U.S. energy world.
PIRA’s study will address:

  • The growth potential for shale liquids production as well as other liquids in North America.
  • Refinery response to growing volumes of light sweet crude.
  • Growing options facing Canada for moving crude to the market.
  • Pipeline expansions and volume and timing.
  • Pricing and global balances as they are impacted by shale crude
  • Costs driven by Bakken, Eagle Ford and other plays.
  • Crude price differentials between regions, grades, U.S. hubs, and major shale plays.
  • State and federal level legislation, court decisions, executive action, and public opinion.

Some of PIRA’s preliminary study findings include:

  • Parallels between what PIRA has observed with shale gas and shale oil are 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 U.S. liquids outlook will not be from crude alone. NGLs from both oil and gas drilling will also contribute significantly to U.S. 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 MB/D per year average out to 2015, then at a faster rate up to a total of about 3.6 MMB/D by 2025.
  • When balances for the U.S. 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 5 years.
  • Imports into the U.S. 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. U.S. propane production is expected to grow rather rapidly and will outpace projected domestic demand. To accommodate this likely growth in supply, the U.S. will become a more extensive exporter.
  • How the WTI-Brent spread reconnects will depend on the marginal buyers of light sweet crude — both their economics (refinery grade swaps) and the marginal cost to move the crude to them (e.g. pipeline costs, rail costs, etc.).

For more information on PIRA’s study, you can click here to view a 20 minute recorded study preview, or you can also click here to view the prospectus in printable PDF format. Further, you may click here for Additional Information on PIRA’s global energy commodity market research services, or contact:

PIRA Energy Group
3 Park Avenue, 26th Floor
New York, NY 10016
212-686-6808
jsteele(at)pira(dot)com

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