Anthony T. Bryan : Are the Americas
emerging as the new center of global energy?
Beyond the business fascination with the current undulating wave of oil and LNG prices there is another story. Namely, there are energy developments in the Americas that will change the global architecture of oil and gas trades for a long time. Here is a broad (non-technical) brush stroke.
Speculation about the causes and impact of the current situation in global oil and gas trades has accelerated. Do lower oil prices reflect weak demand caused by increased supplies of crude? Will cheaper oil benefit the world's largest economies as well as some of the energy deficient poorer countries? Can falling oil prices remove the profit incentive for the U.S., Canada, Australia, and other potential LNG exporters to continue investment in export plants? Is Saudi Arabia playing a waiting game to force shale oil and gas companies in those countries out of business? Will OPEC countries meeting again in November agree to reduce their production in order to keep oil prices stable? Clearly, these are issues that can only be resolved in time by economic, political and geopolitical moves. In the energ y business, speculation has a short shelf life.
But beyond the speculation there are a few certainties.
The global supply of energy will continue to increase and diversify, not contract, and the ongoing increase in U.S. and Canadian oil production will continue to put downward pressure on the global price of oil.
Oil and gas producing states that lack diversified economies will have less economic and geopolitical leverage. Though the Gulf Cooperation Council (GCC) members will remain a central element of the oil market, political turmoi l around the Gulf monarchies has forced an increase in their social spending and made them even more dependent on high hydrocarbon revenues.
As additional North American oil floods the market, OPEC's ability to control prices will be challenged. The traditional regulator of OPEC's spare capacity--Saudi Arabia--is already facing growing fiscal constraints. OPEC will have a difficult time maintaining discipline among its members.
China stands to benefit. Its relations with Russia will improve markedly absent new geopolitical rivalries. Moscow and Beijing can be expected to move closer together on long-stalled energy deals and pipelines through Central Asia.
In the past, the price of natural gas has varied greatly across the three largely distinct markets of North America, Europe, and Asia. Over time, as the Americas, Australia and other countries generate and export greater quantities of LNG, those markets will become increasingly integrated.
There is one business principle that is constant. Capital and technology will flow to those countries that provide the most attractive investment environments. Investors will go elsewhere if they are denied a reasonable return.
The emergence of Saudi America?
Perhaps the real story for the longer term is that the countries of the Americas, driven largely by new extractive technologies, are a major part of the driving force behind this upheaval in global energy. From North America to Argentina, there is a dramatic increase in the discovery, production and export of oil and gas.
Billions of barrels of oil and trillions of cubic feet of gas trapped in shale formations in North and South America, as well as the oil sands of Canada and Venezuela (where the heavy and extra-heavy oil constitute the largest oil deposits in the world) are being unlocked. The statistics provided by the U.S. Energy Information Agency (EIA), and other global agencies, as well as the IOCs and NOCS reveal projections for oil and gas in the Western Hemisphere that are stunning. Taking into account the proven, and probable reserves of recoverable oil and gas in Canada, the United States, Mexico, and the countries of South America, Here is the bottom line:
Oil : The amount of recoverable oil in the Americas is estimated at 600 billion barrels.
GAS : The region has the gas equivalent of 342 billion barrels of oil.
In other words, total oil and gas reserves for the Americas are almost the equivalent of 1 trillion barrels of oil. For comparison, the Oil Depletion Analysis Center (ODAC) in London estimates that the world has consumed just a bit more than 1 trillion barrels of oil since the dawn of the oil age over 150 years ago!
U.S. oil production has already surpassed that of Saudi Arabia, and by 2020, the United States and Canada together could export close to Qatar's current LNG capacity. The eventual integration of North American, European, and Asian gas markets will put downward pressure on natural gas prices in Europe and elsewhere.
LNG cargoes from the Americas (particularly the U.S.) may flow to Europe as well, diversifying the regional gas supply base and diminis hing Europe's dependence on Russian gas imports and political influence.
Gaining the global energy center will not be smooth ride for the Americas but it will be constant. For example, in Latin America the challenges facing development of the region's energy resources are large. According to some estimates, in order to meet future energy demand Latin America must invest a total of between $3-4 trillion in energy infrastructure needs between 2014 and 2035, with nearly $2 trillion in the oil sector alone. It also needs to invest $100 billion in refining alone over the next generation. It is by no means certain that all the needed investment will be forthcoming since the competition for investment dollars and technology to develop not only traditional fossil fuels but also the next generation of alternative energy sources is fierce.
Finally, where is the Caribbean in this emerging energy landscape in the Americas? Unless there are some sustainable deepwater discoveries in the insular Caribbean (other than T&T) in the near future, the region's presence in this emergence is really a conversation about Venezuela, Trinidad and Tobago, and the 3 Guianas (French Guiana, Guyana and Surinam.)
Venezuela is problematic at the moment. Its hydrocarbon resources are formidable. Its proven oil reserves, recoverable oil reserves, and conventional gas reserves are the major elements in the Americas' global energy emergence. But Venezuela's challenges are above ground---not below! Oil production has fallen 25 percent since 199 8. Misguided presidential and government policies have greatly weakened the economy through reckless spending and abuse of the energy sector, and also driven off major investors such as ConocoPhillips and ExxonMobil. If Venezuela is to play its obvious role in the developing energy revolution in the Americas and globally, it must undertake major political changes and dramatically improve its investment environment.
As for the 3 Guianas: French Guiana is the country that inspired the Caribbean current momentum in deepwater exploration following the discovery of the “Zaedyus” in late 2011. IOCs have rushed to tie up acreage in Surinam and Guyana. The results so far have been mixed, but the potential of the Guiana Basin is huge.
Trinidad and Tobago has been successful i n growing its now mature oil industry and its aggressive LNG industry partly because of continuity in administering the energy sector by successive political administrations that read from the same page. T&T can still expect to be highly competitive in a steadily expanding market for internationally traded gas. Current delays in utilizing cross-border reserves (Loran-Manatee fields in the Plataforma Deltana) with Venezuela; the apparent infrastructure delays in preparing to deploy natural gas to the small and medium markets in the Caribbean neighborhood; the reduced demand for T&T LNG in North America; and new competing production in the U.S. for petrochemicals (ammonia, methanol and other downstream derivatives) are challenges that require management and some risk taking. As the insular Caribbean's lead energy economy T&T has the talent and resources to once more lead the Caribbean energy future—this time in regional energy cooperation with at least Guyana, Surinam and eventually a revived Venezuela.
The clarion call for other Caribbean and Central American countries is the waning of the PetroCaribe program. While it saved members more than US$1bn in financing energy costs, and several regional economies from certain collapse, it also became an addiction for its beneficiaries, a contributor to the unsustainable debt accumulation in some of the countries, and postponed any real incentive by its members to switch to cheaper fuel sources or to develop alternative energy. Today only a few members of PetroCaribe appear to have advanced initiatives that can provide alternative sources of energy, or to promote renewables, which are key elements in their energy future.
In sum, the energy revolution in the Americas is well underway. Are we looking at the Americas as the new center of global energy, a position it has not held since the early 20 th Century, and one that will bring balance to a landscape dominated since then by the Middle East?
Professor Anthony T. Bryan consults on energy geopolitics and energy security for U.S. based political and economic risk firms. He writes frequently for international energy and business publications. He is an Associate of the Trinidad-based Association of Caribbean Energy Specialists (ACES).
Editor's Note: This commentary was originally published by Business Guardian on Oct 30, 2014. Petroleumworld reprint this article in the interest of our readers.
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