The impact of shale gas and tight oil energy on global energy markets, as well as improving competitiveness in U.S. manufacturing, have upended global competition, according to IHS Inc.
In “Energy and the New Global Industrial Landscape: A Tectonic Shift,” IHS researchers compiled a review of how the unconventionals are impacting the United States positively, but which pose risks internationally. The report was presented this week at the annual World Economic Forum in Davos-Klosters, Switzerland.
Unconventionals have been a “big boost” for North America, but its impact is widespread, said IHS Chief Economist Nariman Behravesh. “Initially, this has been, and will continue to be, a big boost for North America. However, other regions and countries with large shale gas and tight oil deposits can, with time, also participate in this energy revolution and industrial renaissance.”
In the United States alone, the surge in unconventional drilling already has created an estimated 1.7 million jobs and last year added $62 billion to federal and state coffers. The decline in energy prices also has led to a surge in U.S. investment, posing risks for Europe and Asia, which face a “manufacturing migration to North America, as well as a loss of competitiveness,” said Behravesh.
Whether the unconventional drilling wave successfully moves beyond North America is a frequent question asked by companies and governments because “major opportunities have been identified around the world,” said IHS Vice Chairman Dan Yergin, who co-authored the report. He thinks it will take some time, however.
“Our research indicates that the resource base in China may be larger than in the United States, and we note prospects elsewhere,” he said. “However, circumstances that promoted this development in the United States differ in important aspects from other parts of the world. It is still very early days and we believe that it will take several years before significant amounts of unconventional oil and gas begin to appear in other regions.”
The “geological conditions likely exist” worldwide and “there is no reason that North America would be unique. Moreover, technology migrates very rapidly in the world’s oil and gas industry. At this point, the expectation is that these kind of resources will be developed in other parts of the world…but with a lag.”
The United States differs in several aspects from other regions, said Yergin. A”large number of independents,” as well as “private ownership of mineral rights, infrastructure and service ecosystems. Moreover, the development of these resources requires experience, the build-up of knowledge, and trial and error. It also involves different kind of work practices and mind-set. Governments also have to create fiscal and regulatory regimes that permit work to go ahead and avoid being overly prescriptive with evolving technologies.”
According to the IHS report, oil supply growth in 2013 outside of OPEC — mostly from unconventional resources in the United States — is predicted to be 1.1 million b/d, something that has happened only four times since 1986. BP plc economists predicted in their outlook to 2030 earlier this month that in addition to sustaining natural gas output, the United States likely will surpass Russia and Saudi Arabia this year to become the largest liquids producer in the world (see Daily GPI, Jan. 17).
Increases in supplies outside of OPEC, however, “could be subject to what has proved to be a recurrent ‘history of disappointment,'” IHS warned.
“The North American unconventional oil and gas revolution is having profound effects on the global chemistry industry,” with petrochemical investment in North American “reignited,” said IHS Chemical Chief Adviser Gary Adams. “Energy-derived raw materials represent as much as 75% of total petrochemical production costs.”
For the first time in more than 10 years, several global chemicals companies have announced plans to build or expand facilities in North America, Adams noted. “As much as 10 million metric tons of new ethylene capacity (a basic building block for the chemical industry) is forecast to be built in North America in the near-term. Producers of other chemical products linked to natural gas economics (methanol for example) are also advancing new capacity plans.”
However, expanding new chemicals capacity will require a “major commitment to the export market, as growth in North America domestic consumption is expected to remain moderate. Fueled by exports, basic chemicals and plastics production from 2013 to 2020 is forecast to increase at an average rate of about 5%/year. Longer term, 2020-2030, given expectations that North America will remain a low-cost energy and feed- stock source for the chemical industry, the region could return to more downstream manufacturing of durable and nondurable goods based on these low-cost chemicals and plastics.”
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