Increased production of energy from a number of sources including deepwater drilling, natural gas exploration and Canada's oil sands could make North America the next Middle East, according to a new report from Citigroup.
According to the report, supply will go up substantially a result of the substantial strides in natural resource extraction. In addition, demand for oil in the U.S. is down 2 million barrels per day (since the peak in 2005) and is expected to continue declining over the next decade. Some of this is the result of the 2008 recession but it is also partly a structural decline.
The article quotes Ed Morse, head of global commodities research at Citigroup. Mr. Morse says this supply and demand revolution has "potentially extraordinary" economic consequences.
The report also predicts that the U.S. could overtake both Russia and Saudi Arabia in oil production by 2020. Check out the chart in this article.
According to the article, Citigroup's analysts assert that some of the consequences for the U.S. in a "good case" scenario include:
- An increase in GDP of 2.0 to 3.3 percent
- Roughly 3.6 million new jobs by 2020
- Decreased geopolitical risks
- A decline in oil prices
In 2011, the U.S. became an exporter of refined oil for the first time since 1949 but will likely continue to be a net importer of crude oil for a very long time. The U.S. currently imports roughly 9 million barrels of crude oil per day so there's a long way to go.
There's still a ways to go but the Citigroup report suggests the U.S. could put a material dent in those 9 million barrels of daily imported crude oil in less than ten years.
From this article in The New York Times:
Across the country, the oil and gas industry is vastly increasing production, reversing two decades of decline. Using new technology and spurred by rising oil prices since the mid-2000s, the industry is extracting millions of barrels more a week, from the deepest waters of the Gulf of Mexico to the prairies of North Dakota.
We are also using significantly less gasoline. In part due to the recession and high prices but also from driving less with more fuel-efficient machines. While our reliance on imports continues to be substantial, I doubt many would have predicted that anything like this would happen in the U.S. as recently as five or so years ago.
The question is whether there's a smart way to invest in this.
That I haven't figured out yet.