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Global Energy Review

The United States of America and the Quest for Energy Security

A Report by Dr Paul McDonald
Consulting Editor, Oil and Energy Trends

• A survey of the energy balance of the US with particular reference to its reliance on foreign oil;
• Plus an evaluation of the various proposals to improve the energy security of the US.
• Includes links to archive material from Oil and Energy Trends and hyper-links to relevant web-sites.

Contents

• Introduction
• US Energy in the World Context
• The US Energy Balance
• Running out of Oil

• Oil Production
• Finding more Oil
• Worrying about Imports
• Hemispheric Solution
• Venezuela
• Canada
• Mexico
• Ecuador
• Colombia
• Other Countries
• No Hemispheric Solution

• Substituting Gas for Oil

• Finding more Gas
• Non-Conventional Sources of Natural Gas
• Hemispheric Solution for Gas?
• LNG Imports

• Other Energy Sources

• Using more Coal
• Clean Coal Technology
• Outlook for Nuclear Energy
• Role for Renewables

• Outlook for US Energy Security, 2004-2010
• Latest Developments

List of Tables

• Table 1 US Energy: World Rankings, 2003
• Table 2 US Share of World Energy Consumption, 2003
• Table 3 US Share of World Primary Energy Consumption, 1973-2003
• Table 4 US Energy Balance compared with World Average, 2003
• Table 5 US Energy Net Trade as Percentage of Consumption, 2003
• Table 6 US Primary Energy Balance, 2003
• >Table 7 US Energy Production, Consumption & Net Trade, 2003
• Table 8 US Energy Balance, 1973-2003
• Table 9 US Oil Balance and Imports, 2003
• Table 10 US Crude Oil Production by Area, First Quarter, 2004
• Table 11 US Potentially Recoverable Oil Reserves from Federal Lands and Offshore Areas
• Table 12 US Crude Oil Imports, 2003
• Table 13 US Oil Imports from Arab Countries, 2003
• Table 14 Western Hemisphere Proven Oil Reserves, 2004
• Table 15 US Oil Balance, 2003 and 2010
• Table 16 US Proven Gas Reserves and Gas Balance, 2003
• Table 17 US Potentially Recoverable Gas Reserves from Federal Lands
• Table 18 US Gas Balance, 2003 and 2010
• Table 19 Natural Gas: Gross US Imports, 2003
• Table 20 US LNG Terminals
• Table 21 US Coal Consumption and Production, 2003

Introduction

The United States of America is the world's largest energy market. It is also the world's largest importer of oil. It is a major producer of energy, but it does not produce sufficient oil, natural gas or coal to satisfy domestic needs. The outlook for consumption of all three fuels is up: the prognosis for the production of oil is down and only minor gains appear possible for gas and coal.

Concern about the widening gap between production and consumption is turning into neurosis. Energy security has become an issue in the US Presidential campaign. In the perfervid political debate that has sprung up over energy policy, energy security has become conflated with a host of other issues including terrorism, US policy in Iraq, the role of the House of Saud in Washington politics and US relations in general with the Arab world.

Behind these issues, however, are a number of serious energy issues, which this report seeks to address. In particular:

• What is the size of the problem?
• Does the US have the resources and the political will to solve the problem itself?
• If not, to which foreign sources of energy is it most likely to turn?
• Can the US avoid becoming much more dependent on the Middle East for its energy?

The answers to these questions will determine far more than the energy policy of the US. They will set the main directions of its economic and foreign policy. When the US worries about its energy, the rest of the world should look out.

US Energy In the World Context

The United States of America is the largest consumer of oil and natural gas in the world and the second-largest consumer of coal. It is a major producer of all three fuels, but its proven reserves of oil and gas do not rank so highly in world terms, except for coal (see Table 1). Output of all three fuels is below peak levels, though the decline of coal and natural gas is more recent than that of oil, and there is even a possibility of a revival in output in both cases. The US is the world's largest importer of both oil and natural gas.

The US constitutes roughly one quarter of the world's gross domestic product (GDP) and consumes a roughly similar proportion of its commercial energy. It also consumes about a quarter of the world's oil, but a somewhat higher proportion of global nuclear energy (see Table 2).

The US share of world energy markets has changed remarkably little over the last 30 years (see Table 3) with the exception of natural gas. The US was one of the first countries to make widespread use of natural gas and, as recently as the 1970s, accounted for more than half the world's consumption of gas. Since then, its use has spread rapidly across the world such that the US now makes up just under one quarter of world consumption.

The US energy balance is not all that dissimilar to the world average (see Table 4). The American proportion for oil is a little higher, as is nuclear power: the main difference is hydro-electric power.

The primary concern for the US and many parts of the rest of the world is the growing US dependence on imports for its fuel supplies. Whereas US obtains less than 4% of its supplies of coal from foreign sources, it must import nearly 13% of its natural gas and almost 63% of its oil supplies (see Table 5). Other large energy consumers fear increasing competition with the US for hydrocarbons, especially oil, leading to higher world prices.

US oil imports account for about 27% of the world's entire trade in oil, whilst US imports of natural gas absorb some 18% of the world trade in that commodity. The other two main markets for oil exports are Europe, which absorbs 26% of internationally-traded oil, and China and Japan, which together account for a further 17%.

Europe imports more gas than the US, accounting for 56% of world trade. Japan, South Korea and Taiwan, meanwhile, make up a further share between them of 18%. The much smaller international coal trade is dominated on the importers' side by Europe and Asia.

In these circumstances, it is hardly surprising that the United States exercises such a powerful influence in the world's energy markets. Its role is most evident in the international oil market, where it provides the largest and most active trading arena in the world in the form of the futures and related markets based at the New York Mercantile Exchange (Nymex). The large projected growth in US imports of liquefied natural gas (LNG) is likely to increase its influence over the world price of natural gas as well, especially when US LNG trade is added to its already large international pipeline trade in gas, which has already spawned active spot and futures markets. US energy problems and their solutions (or otherwise) affect just about everywhere else on the globe where energy is consumed.

The US Energy Balance

The US consumes 25% of the world's oil and accounts for 27% of all the oil that is traded internationally. As its oil production rises, its role in the international oil trade-which is already large-looks set to increase significantly. The prospect does not seem particularly enticing either for the US or the rest of the world. For its part, the US wants to see a long term shift in its energy balance away from oil, especially imported oil. Recent history suggests that reducing the role of oil substantially is likely to prove a difficult task.

Oil currently makes up nearly 40% of primary energy consumption (see Table 6). While this is not greatly above the world average (see Table 4), there are several factors that make it difficult for the US to make substantial reductions in its use of oil, including:

• The large size of the country, which forces up the consumption of transport fuels such as gasoline, diesel and jet fuel;
• The lack of gas pipelines in certain parts of the eastern seaboard, which obliges some electricity producers to continue to use heavy fuel oil;
• The recent fashion for sports utility vehicles (SUVs) and other forms of motor transport with lower fuel efficiencies than many standard automobiles;
• Objections by environmentalists to many of the energy sources that might be substituted for oil in various instances, including coal (because of carbon emissions); nuclear power (because of waste disposal); hydro-electricity (opposition to dam-building); and wind turbines (because of visual intrusion and fears of bird-strikes).

This gives US policy-makers a number of difficult problems to resolve. Their difficulties are compounded, moreover, by the fact that oil is the most politically-sensitive of all the energy sources. The oil industry connections of President George W Bush and Vice-President Dick Cheney have been heavily criticized by their political opponents. The Bush administration has been accused of favouring oil industry interests in a host of areas, not least in Iraq, where Halliburton, a company that once had Dick Cheney as its chief executive, has been attacked for overcharging for fuel it imported into Iraq on behalf of the US government. The entire Iraq war has been attacked by many in the US as being primarily a war about oil.

OET ARCHIVE

'Bush gambles on a new deal for Iraq' Focus Jan04.

Oil's high profile in US politics is not simply a matter of its being the country's most important fuel (see Table 6). It also makes up the vast majority of US energy imports (see Table 7). This, in turn, has led to a series of contentious political arguments about how far the US should be dependent on Arab countries in general and the Middle East in particular for its oil. More recently, some polemicists have begun to focus their scrutiny on the role of the largest Middle Eastern supplier to the US, Saudi Arabia, and suggest that this role gives the Saudis in general, and the kingdom's ruling house in particular, an unhealthy level of influence in the corridors of Washington.

The US has been able to reduce its dependence on oil in the fairly recent past. Following the two major oil shocks of the 1970s, it managed to bring down the proportion of oil in the energy balance from 47% to 41% over a ten-year period (see Table 8), largely as the result of a rise in the consumption of coal and nuclear power. Over the last 20 years, however, there has been little change in the relative proportions of the main sources of energy within the US balance as a whole other than a small rise in the role of coal, mainly at the expense of oil (see Table 8). Coal and nuclear power are unlikely to replace much more oil-burning unless there is a major turnaround in US political thinking.

Running out of Oil

The US produces just under 7.5mn bpd of oil and natural gas liquids (NGL) and consumes 20.0mn bpd as crude oil, refined products, NGL, unfinished oils, gasoline blending components or feedstocks. Most of its imports arrive in the form of crude oil (see Table 9).

The US demand and supply balance shows two clear trends: oil and NGL production are falling, while consumption is rising. This pattern is unlikely to be reversed in the foreseeable future: hence the growing concern over import levels.

OET ARCHIVE

US Oil Production 1995-2004 Table 4.4a
US Oil Consumption 1995-2004 Table 10.1

Oil Production

US oil production has been in steady decline since 1970, when output peaked at 11.3mn bpd, of which 9.6mn bpd was crude oil and the remaining 1.7mn bpd NGL. During the first quarter of 2004, the total output of liquids was 7.3mn bpd, of which 5.6mn bpd was crude oil and 1.7mn bpd NGL. Production of NGL has been remarkably steady around 1.7 mn bpd since 1970, reflecting the more or less steady, if slightly declining output of natural gas. It has not, however, been nearly sufficient to offset the decline in crude oil output.

OET ARCHIVE

US NGL production 1970-2003 Annual Statistical Review Table 3.3
US gas production 1970-2003 Annual Statistical Review Table 4.1

Oil production occurs in over the half the states of the US but is concentrated in a small number of them, notably Texas, Alaska and California, plus the federal offshore areas of the Gulf of Mexico (see Table 10). Most of these areas, with the principal exception of the Gulf of Mexico, are mature oil provinces with output in long term decline. US oil production is expected to go on declining over the next two decades. The US Department of Energy's Energy Information Administration (EIA), on the other hand, expects demand for oil to rise by about a third over about the same period.

Finding more Oil

US proven oil reserves amounted to 30.7bn bbl at the start of 2004: sufficient for just over 11 years' production at current rates. US reserves constitute less than 3% of the world's proven reserves. US production, on the other hand, accounts for 9% of total world output. Finding new reserves, therefore, must be a priority for the US. Much of the low-cost oil in the US has already been discovered and produced. Most of any new oil will have to come from high cost frontier areas, such as the Arctic or the deep offshore.

The US, on the other hand, also has large reserves of oil shales. Some estimates of reserve levels exceed 1 trillion bbl, but such estimates give no indication of how much of this oil is commercially recoverable. Oil shales are costly to work and the extraction of liquids from the shale-beds requires high inputs of energy. Even with high crude oil prices, there is little sign that the US is about to open up its large untapped reserves of shale oil. Canada, which also has large resources of shale oil, has encountered several economic and environmental problems, which have delayed plans to develop the industry there.

OET ARCHIVE

'Canadian Tar Sands Developments threatened' Looking Ahead Dec02.

The US nevertheless has considerable untapped reserves of conventional crude oil, much of it lying under land owned by the federal government. Large areas, however, are off-limits to oil and gas exploration for environmental and other reasons. The only way the US can find large new energy resources quickly is to open up these areas; but this is likely to prove highly controversial.

The US Congress has designated some 610mn acres of the Outer Continental Shelf (OCS) off-limits to exploration. Under present legislation, this prohibition lasts until at least 2012. Offshore leases are thus confined to parts of the Gulf of Mexico and a few areas off California and Alaska. The remainder of the OCS is estimated by the Department of Energy to contain recoverable reserves of 59bn bbl of oil (see Table 11). The most prospective of these undeveloped areas is the Arctic OCS, which contains an estimated 23bn bbl of recoverable oil.

There are also some highly attractive undeveloped onshore projects where exploration is either highly restricted or even banned altogether. These include the National Petroleum Reserve-Alaska (NPR-A) and the Arctic National Wildlife Refuge (ANWR), also in Alaska. Exploration is permitted in a small part of the NPR-A, which lies between the Brooks Range and the Arctic Ocean. Recoverable reserves are estimated at over 2bn bbl of oil. ANWR's potential is even greater. ANWR consists of a 19mn acre conservation area situated on the northern coastal plain of Alaska. One area of less than 2mn acres, known as the 1002 Area, has been surveyed for its hydrocarbon potential. The US Geological Survey (USGS) has identified the 1002 Area as the single most promising prospect in the US, with reserves estimated in a range of 6-16bn bbl. The production potential of the area is put at 1.0-1.3mn bpd, roughly equivalent to the present output of the whole of Texas (see Table 10).

Elsewhere in the US considerable, if less spectacular reserves are found under federal lands, where exploration and production are severely restricted or banned altogether. Around 4bn bbl are thought to underlie such areas.

Opposition from environmentalist groups to the opening-up of federal lands and offshore areas is considerable. Other groups see the exploitation of these reserves as essential to improving the energy security of the United States. Given that the US has only about 11 years of oil production from its existing proven reserves, major new developments from new areas are essential to prevent a rapid decline in US oil output: let alone to stabilize or even increase oil production.

The largest single producing state is Texas (see Table 10). Here, however, oil production has been falling since the 1970s. Periods of weak oil prices have seen particularly sharp falls since that time: for example, in 1999, when output in the state declined by over 15% compared with the previous year. More recently, output appears to have stabilized thanks to much higher prices, which have encouraged oil producers to increase levels of enhanced oil recovery (EOR). Occidental Petroleum, the state's biggest producer, has used a combination of new drilling and EOR to increase its oil production, recording a year-on-year rise in 2003 to 150,000 bpd.

Output is in decline in the other large producing states, including Alaska, where production peaked in 1988. As in Texas, production levels may have been stabilized, but this looks like a temporary phenomenon. California's production has been in decline since 1985. Much of the state's output consists of heavy crudes which are expensive to extract. There is also considerable opposition to new oil production from environmentalist groups.

This leaves the Gulf of Mexico as the main short term source of incremental production. Output is forecast by the Department of Energy to rise by 1.0mn bpd between 2004 and 2007, to 2.5mn bpd, but this is unlikely to offset the decline in production from the rest of the US. Moreover, the Gulf of Mexico is expected to peak around 2007, falling back to 2.0mn bpd by 2015.

A combination of EOR, drilling in existing producing areas, plus rising output from the Gulf of Mexico should keep US crude oil output above 5.0mn bpd for the remainder of the decade, to which might be added 1.6mn bpd or so of NGL. The output of liquids could decline sharply after that, however, unless there are major new developments in Alaska and elsewhere.

Worrying about Imports

Throughout the decade and beyond, the consumption of oil is expected to rise. It follows, therefore, that the US will have to import more. Oil imports are a potentially sensitive issue and have become much more so since the terrorist attacks of 11th September, 2001. It is not only the increasing role of oil imports in the energy balance-the US now relies on imports for 63% of its supplies-it is also the fact that an increasing proportion of US imports is coming from countries regarded as unstable or hostile to US interests, amongst which are included the Arab nations of the Middle East and North Africa.

The US imported 9.6mn bpd of crude oil in 2003. The largest supplier was Saudi Arabia, with 1.7mn bpd, or 17.9% of the total. Other Middle Eastern countries also featured prominently in the list (see Table 12).

US imports of crude oil from Arab countries amounted to 2.6 mn bpd or 26.6% of all crude oil imports in 2003. In the same year, Arab countries supplied 372,000 bpd of refined products, or 14.3% of the total (see Table 13).

The role of Arab oil is becoming increasingly contentious. In the run-up to the 2004 US presidential election, George W Bush's Democratic Party opponent, Senator John Kerry, declared that he wanted "an America that controls its own destiny because it is finally and forever independent of Mideast Oil." On present trends, however, the US is likely to require more Middle Eastern oil, not less, and is certainly unlikely to become independent.

Hemispheric Solution

Previous US governments have tried to devise a 'Hemispheric Solution' to the problem of rising foreign imports by encouraging trade with other parts of the Americas. In particular, the US has sought to import more oil from Canada, Mexico, Venezuela, Colombia and Ecuador, all of which feature prominently in the current list of suppliers (see Table 12). Production from Colombia, however, is in decline and is not growing particularly strongly in the other countries. Venezuela's production has fallen since 2001 as a result of political and industrial unrest there since late 2002. It is not clear whether Venezuela's production capacity has been permanently damaged by the stoppages in 2002 and 2003.

OET ARCHIVE

Western Hemisphere Oil Production 1995-2004 Table 4.4a

Venezuela

None of the above countries except Venezuela has the reserve levels suggesting that major increases in production are likely over the next few years (see Table 14). Some of Venezuela's oldest fields, mainly in the west of the country, are in any case in decline. Moreover, up to 0.3mn bpd of production capacity may have been lost as a result of the strikes of 2002-3. There are newer fields in the east of the country, such as El Furrial and Santa Barbara, but these, too, are reported to be suffering from strike damage and a more general problem of underinvestment. A shortage of investment is likely to continue to hold back Venezuelan oil production. The national oil company, Petroleos de Venezuela (PDVSA) plans to raise production from 2004's level of about 3.0mn bpd to nearly 4.9mn bpd by the end of the decade. based on current investors, this looks somewhat optimistic. A figure of 4.0mn bpd might be more realistic for 2010.

Canada

Canada also faces problems in raising its output, since most of its undiscovered oil either lies in frontier areas offshore, in the Arctic or in shale oil deposits, all of which are costly to develop. Output could rise between now and 2010, though not all would be available for export to the US, given Canada's own growth in consumption.

OET ARCHIVE

Prospects for Canadian gas and oil, Focus Aug04

Mexico

Mexico, like Venezuela, is constrained in raising its oil production by a lack of capital. Its oil reserves, however, are much smaller (see Table 14). Since late 2000, the state oil company, Petroleos Mexicanos (Pemex) has been trying to reverse the gradual decline in Mexican oil output and exploration has been stepped up, particularly offshore.

This activity is nevertheless taking place against a background of years of under-investment in the upstream sector and the decline of large, mature fields, such as Cantarell, the country's largest field, which produces sour, heavy crude in the Gulf of Mexico, where output has declined by about a third in recent years to just over 1.5mn bpd. Pemex plans to raise Mexico's production to 4.0mn bpd by 2006, compared with 3.8mn bpd in early 2004. This may well be achievable thanks to rising output of NGL, now about 0.4mn bpd, but little increase appears likely after that date given Mexico's low and declining proven oil reserves.

Ecuador

Ecuador has managed to keep production around 0.4mn bpd in recent years thanks to foreign investment in both exploration and infrastructure. In 2004, output even exceed 0.5mn bpd following the opening in late 2003 of a new, privately-owned export pipeline. There has, however, been some opposition to foreign and private investment in both exploration and pipelines. Foreign firms also complain that Ecuador's upstream terms are not particularly attractive. National output looks unlikely to exceed 0.5mn bpd by very much over the next few years.

Colombia

After Mexico and Venezuela, Colombia is the third-most important Latin American supplier of crude to the US, with nearly 0.2mn bpd in 2003 (see Table 12). Output, however, has fallen sharply since 1999, thanks to a combination of natural decline and civil unrest. The largest field, Cusiana-Cupiagua, has seen its output more than halve since 1999 to less than 0.2mn bpd. Without a large new find and a vast improvement in the security situation, Colombia is likely to become a net oil importer before the end of the decade.

Other Countries

Brazil is the third-largest oil producer in Latin America with 1.6mn bpd. Output could even rise by a small amount, but Brazil is a net importer of oil and likely to remain that way. Peru, another net importer, is likely to see its output decline. Argentina is likely to become a net importer as its production also declines. Trinidad & Tobago are likely to increase production over the next few years, though by less than 0.1mn bpd, to just over 0.2mn bpd.

No Hemispheric Solution

The Western Hemisphere will provide very little of the extra oil the US is likely to require between now and the end of the decade. With US net imports set to rise by about 3mn bpd (see Table 15), the most the Western Hemisphere is likely to be able to provide is an extra 1mn bpd, mainly from Venezuela and Canada, and even this figure assumes a transformation of the situation in Venezuela and a large increase in upstream investment there.

Substituting Gas for Oil

The US has embarked upon an ambitious programme of substituting natural gas for oil, especially in the electric power sector. Gas production has even begun to rise after a long period of decline, but gas suffers from many of the problems associated with oil: insufficient proven reserves and too many potential gas-producing areas off-limits to exploration. The US is already a net importer of gas (see Table 16) and imports will have to increase substantially if the planned level of oil substitution is to occur.

OET ARCHIVE

US Gas Production 1970-2003 Annual Statistical Review, Table 5.1

The recent revival in gas production stems largely from the decision by many US power generators to build large numbers of new gas-fired stations. Since 1999, nearly 240 GW of new generating capacity has either been built or is already under construction, of which 80% is gas-fired.

While this represents an important fuel shift in the electricity sector, the potential for gas substitution in other parts of the economy is a good deal less. The rapid growth in demand for gas in recent years has forced up US gas prices dramatically. At the start of 2002, gas futures prices were as low as $2.00 per mn BTU, following a period of low and stable prices. By December of that year, they had topped $5.20 per mn BTU and the following year they exceeded $7.00 per mn BTU, which level they also surpassed in January 2004. Such volatility has particularly affected the manufacturing sector and has even prompted some industrial users to switch out of gas into fuel oil. Some power generators have done so as well and such fuel switching, even if only on a temporary basis, is likely to continue, thus slowing down the planned substitution of gas for oil.

OET ARCHIVE

'Utilities switch out of Gas into Fuel Oil', Gas and Power Aug04

Residential and commercial demand for gas does not look like rising either. Although more customers may sign up for gas suppliers, high prices are likely to encourage conservation. Efficiency gains are also likely from new gas-using appliances.

Finding more Gas

The majority of US gas fields are mature and in long term decline, though recent high prices (see above) have encouraged higher recovery rates in some areas, helping to stabilize output in some areas, at least temporarily. Any new production will have to come either from the Gulf of Mexico, the Rocky Mountain states or from federal lands, principally in Alaska, where exploration is currently prohibited.

Any extra output from the Gulf of Mexico will have to be from deepwater deposits, now that the fields in shallow waters have been exploited. The pace of discoveries has been steady rather than spectacular. A new gas field, Dominion's Devil's Tower, came on-stream in 2004. There have also been some promising results from ultra-deepwater acreage.

The US Geological Survey (USGS) estimates that 193 tcf of recoverable reserves lie under the Gulf of Mexico, but some of these are presently off-limits to exploration. Most of the gas industry's attention, in any case, appears to be focused on the Rockies, where the USGS has identified some 260 tcf of recoverable reserves.

In the 1980s, the major oil companies were primarily interested in the oil reserves of the Rockies. Most abandoned oil exploration there in favour of more prospective areas like the Gulf of Mexico, leaving the Rockies to small, independent companies. These have switched the upstream focus to gas and many have become much larger companies as a result. The range of gas opportunities has been greatly extended by the exploration for non-conventional sources of gas, including coal-bed methane (CBM) and tight gas (see Box).

Gas production from all sources in the Rockies could go up by 1-2bn cfd between now and 2010, though this will require the opening up of some areas that are presently off-limits to exploration and a speeding-up in general of approvals for drilling. Some 137 tcf of gas reserves are said to lie under federal lands (see Table 17). Of these,, some 29 tcf are closed to exploration, while the remaining 108 tcf are subject to various restrictions on development. New pipelines will also be required.

Along with the Rockies, the greatest potential for new gas production in the US appears to be Alaska. The USGS estimates recoverable reserves there to be 68tcf, with a further 123tcf on the Alaskan Outer Continental Shelf (OCS). Strict limits have been placed on exploration in Alaska (see 'Finding more Oil' above). There are nevertheless plans to open up an area around Prudhoe Bay on the Alaska North Slope (ANS) to supply some 4.5bn cfd of gas to the US Mid-West by 2010.

Apart from the considerable legislative hurdle to be cleared before any production can begin in such an environmentally-sensitive area, the scheme's promoters must find financing in the region of $8-15bn for a pipeline to carry the gas into the Lower 48 states. An ANS gas export line may also encounter opposition from the Canadian government, which is backing a rival scheme to develop the Arctic gas resources of Canada.

OET ARCHIVE

'US looks North (and South) as Gas starts to run out', Focus Aug04

Some of the extra gas produced in Alaska and the Rockies will be required to replace gas from declining fields elsewhere in the US. Given the speedy approval of major new projects in the Rockies and Alaska, the US might be able to raise its gas production between now and 2010. Under the best circumstances, output might rise by about 2bn cfd, but only if there are major new developments in both the Rockies and the ANS. Consumption, on the other hand, is likely to rise by even more pushing import totals up substantially (see Table 18).

Hemispheric Solution for Gas?

The US will look first to its near neighbours for as much gas as possible, starting with Canada, the Caribbean and parts of Latin America. It already imports some 10.6bn cfd from sources in the Western Hemisphere: equivalent to 97% of its gross gas imports (see Table 19).

Canadian gas production has been growing slowly since the late 1990s. Canada, though, like the US, is dominated by mature, declining fields and needs large new discoveries with which to replace them. As in the US, the most prospective areas are both politically sensitive and expensive to develop. These areas include CBM, tight gas deposits in British Columbia, Arctic gas from the Mackenzie Delta and deepwater fields off Eastern Canada (see OET ARCHIVE LINK 'US looks North (and South) as Gas starts to run out' above). While Canadian production may rise over the next few years, some of the extra gas will undoubtedly be required for domestic consumption, leaving little extra for the US market. If there are delays to some large projects, Canadian exports could even fall.

Canadian gas is the main preference of many US gas users since it is supplied by a pipeline system that is well integrated into that of the United States. The only other potential foreign source of pipeline gas is Mexico. Most Mexican gas is produced in association with oil, and since there is little scope for increasing the output of oil the production of associated gas is not expected to rise much either (see first part of Report). Mexico has plans to raise gas production by developing several non-associated gas fields. Output is supposed to rise from the current level of 4.5mn cfd to about 7.0bn cfd towards the end of the decade, but Mexico will probably struggle to finance the exploration and infrastructure to achieve this level by 2010. More significantly from the US point of view, the growth in Mexican demand for gas is likely to ensure that Mexico remains a net importer from the US throughout this period. Indeed, on present projections of demand, Mexico may well require imports of around double their present level by 2010, when it could be importing as much as 2bn cfd, some of which is likely to be in the form of LNG.

OET ARCHIVE

'Mexico struggles to stave off Power and Gas Shortages', Gas and Power Mar03

Given these constraints, the US has been obliged to turn to LNG to cover some of its future import requirements. Possible Western Hemisphere suppliers are Trinidad & Tobago, Venezuela and Bolivia. Trinidad already supplies just over 1bn cfd. A small increase in this volume is likely, but Trinidad is also keen to use its gas to encourage the development of local industries rather than exporting all its surplus gas as LNG.

Venezuela has plans for LNG exports. Like Mexico, most of its gas is produced in association with oil. Venezuela may have its first LNG export train by 2010 capable of exporting about 0.6 bn cfd to the US. Bolivia has plans to export 0.8bn cfd to Mexico and the US, but the land-locked state has still to find a site for an export terminal, probably in Peru, while the government has to find foreign investors to undertake the project in an area where there are competing and less risky gas projects.

OET ARCHIVE

Latin American Gas, Gas and Power May04; Mar04; Jun03

Most of the extra LNG required by the US by 2010 will need to come from outside the Western Hemisphere. Assuming US gas import requirements of about 15bn cfd by 2010 (see Table 18), and net Canadian exports of around 8bn cfd, the US will require some 7bn cfd of LNG imports, of which 2bn cfd at the most look like coming from the Western Hemisphere. The remaining 5bn cfd will be partly made up of imports from West Africa, but some will inevitably come from Arab countries, especially later in the decade. By 2010, more than 3bn cfd are likely to be imported from Qatar, Algeria and Egypt.

To handle these extra imports the US will need to build a large number of LNG regasification terminals (see Table 20). Several have been proposed, but many are awaiting planning permission and at least one, in Maine, has been rejected by local voters. Having the terminals on stream in time could prove to be more difficult than sourcing the gas itself. Several proposals have been made to circumvent the US planning process, including import terminals in the Bahamas connected to the US by undersea pipeline and in Baja California in Mexico, from where gas could be piped into the southern US. The Mexican terminals, however, are beginning to excite local opposition from groups objecting to what they see as the exporting of the US import problem to environmentally sensitive areas on the Pacific Coast of Mexico.

Other Energy Sources

The US has a number of other options to replace the consumption of oil, notably coal, nuclear power and renewable energy. The main commercial sources are coal and nuclear power.

Using more Coal

Coal is used mainly in the electric power sector, having been substituted in every other sector apart from steel-making (see Table 21). Despite substitution in non-power uses, coal makes up a major part of US primary energy consumption, being second, after oil, with 25% of the energy balance (see Table 4). It also accounts for more than half of US electricity generation. The US is the second-largest consumer of coal in the world, after China, and the second-largest producer, also after China. Its reserves, at 250bn tonnes, are the largest in the world: more than twice those of China (see Table 1).

Resource levels are therefore not a constraint in increasing the role of coal in the US energy balance. Recent events, moreover, have made coal increasingly attractive as a fuel source in power generation. High gas prices have improved the economics of burning coal to make electricity, while the lack of spare capacity in the nuclear power sector means that fossil fuel plants are likely to be required over the next few years to cope with rising electricity demand. Despite this, there are a number of factors inhibiting the greater use of coal. Coal is disadvantaged in terms of waste production and emissions of carbon, nitrogen oxide, sulphur dioxide and metals such as mercury, compared with most other fuels, especially gas. In recent years, gas-fired power stations were favoured over coal when new generating capacity was being added, not only because of their lower emission levels but also the higher efficiency of gas-fired stations and their lower capital costs.

High gas prices are encouraging power companies to look again at the idea of building coal-fired stations, as are advances in clean coal technology (see box). The problem remains, however, that the approval process for new coal-fired plants is both cumbersome and protracted. Coal has considerable potential to meet much of the expected increase in US electricity demand. Legislative uncertainty, however, is likely to ensure that it is gas rather than coal that accounts for most new generating capacity between now and 2010.

Outlook for Nuclear Energy

Nuclear power accounts for 20% of all electricity generated in the US and 8% of the primary energy balance (see Table 4). The planned expansion of the nuclear industry, however, has been on hold since the 1980s following the accident in 1979 at Three Mile Island. Since then, some nuclear stations have closed and no new nuclear units have been ordered since 1977. Despite all this, the amount of nuclear energy produced rose steadily between 1979 and 2002 thanks to increasing efficiencies of operation and a rise in nuclear plant utilization rates from about 70% to 90%.

The outlook for nuclear power is nevertheless unclear. A major issue to be resolved is the provision of long term waste storage. One encouraging development from the nuclear industry was the first-ever renewal of a nuclear plant's operating licence, which was granted by the Nuclear Regulatory Commission (NRC) in 2000 when 20-year extensions were granted to two reactors at the 1.7GW Calvert Cliffs station in Maryland. While it may be some years before the construction of a new nuclear power station is approved, some operators may be eventually allowed to build new reactors on existing sites. It is unlikely, however, that any additions to nuclear capacity will be made during the current decade. The year 2002 may even turn out to be the high-water mark for nuclear generation in the US. The following year, output fell by 2.1%.

Role for Renewables

Most of the contribution from renewable energy in the US comes from hydro-electric power, which accounts for about 7% of electricity generation and 3% of total commercial energy consumption. Its use is concentrated mainly along the West Coast and in the North-East.

There appears to be little scope for extending the production of hydro-electricity over the coming decade. Most of the best sites have already been developed and there are growing objections from environmentalists to the building of further dams. Hydro-electricity, in any case, has proved unreliable in some cases, as in California, where low rainfall greatly reduced the availability of hydro-electric power in 2001, contributing to severe electricity shortages in the state.

Other renewable sources provide only 2% of US electricity needs and make up less than 1% of the total energy balance. There are, however, considerable possibilities for biomass, geothermal, wind and solar energy. Of these, biomass can substitute directly for oil as a component in motor gasoline. Plans by many states to replace methyl tertiary butyl ether (MTBE) with ethanol produced from corn could back out between 0.1 and 0.2mn bpd of MTBE consumption. Three states-California, New York and Connecticut-have already banned MTBE. Some MTBE, however, is manufactured from natural gas rather than oil, which may reduce the oil-substitution effect of ethanol to below 0.1mn bpd.

OET ARCHIVE

'US Refiners may struggle to meet new Gasoline Specs', Looking Ahead May03

Biomass can provide further direct substitution for oil through biodiesel, made from vegetable oils, and from the direct burning of wood and biomass wastes to generate electricity. Over 75% of the electricity generated from renewables (excluding hydro-electricity) comes from biomass. Further substitution from biomass is possible from the gasification of biomass wastes from landfill sites.

The main contribution to electricity generation from renewables after biomass comes from geothermal sources. There are further possible contributions from underground hot water sources in space-heating for buildings. Wind energy makes a small contribution to electricity generation, and an even smaller role is played by solar power.

The role of renewables, including hydro-electric power, is unlikely to increase by very much between now and the end of the decade. One problem is the high cost of electricity generation from some sources, particularly solar and biomass. Most renewable sources provide only small increments per site. The main opportunity for renewables is likely to come from distributed energy where the electricity distribution system is broken down into much smaller areas served by small generating units, often operating on a stand-by basis. The idea is to make these small distribution areas more self-sufficient in power production, thus minimizing the large scale generating capacity that has to be kept on stand-by to meet daily and seasonal demand peaks. Distributed energy would require considerable changes to the electricity supply industry and the process would take several years.

Outlook for US Energy Security, 2004-2010

Coal, nuclear power and renewables are not a security issue insofar as they might require significant imports of these types of energy between now and 2010. They may, on the other hand, allow the substitution of some oil and gas, mainly in the electric power sector. Nuclear power, hydro-electricity and other renewables, however, are unlikely to increase their share of the energy balance between now and the end of the decade and may, in fact, not increase their actual output by very much, either. Coal has considerable potential to increase its share in the energy balance, but uncertainties about future environmental policies are likely to make power generators cautious about committing to large numbers of coal-fired stations.

This leaves oil and natural gas to provide much of the increment in US energy consumption to 2010. The main impact of gas will be in the electricity generation sector, leaving oil more or less unchallenged in the transport fuel sector. Oil and gas will compete to some extent in the space-heating market.

The forecasts presented in Tables 15 and 18 show the following pattern:

These assume the best case for production of both oil and gas. Gas is the more sensitive to changes in production forecasts given that the 2010 figure above assumes large new discoveries in the Rockies and the start-up of an environmentally and politically controversial project in Alaska.

Any shortfall in US gas production would have to be made up from LNG imports. LNG supply, however, does not appear to be a problem and the US ought to be able to obtain future imports from a wide range of sources, of which Arab countries might make up about 20%: equivalent to 4% of total consumption.

US security issues therefore will centre principally on the rise in import levels for oil and the growing role of Arab countries in the US supply balance. In 2003, Arab nations provided 23% of US crude oil and refined product imports. Of the forecast 3.2mn bpd of additional imports required by 2010, Arab suppliers may provide up to 2.0mn bpd, leaving the rest to come mainly from the Atlantic Basin. Under this scenario, the Arab contribution to US oil supplies in 2010 will be 31% of total oil imports and 22% of consumption.

These may well prove to be the minimum level of dependence, given the uncertainties over future output levels in some of the current large foreign suppliers to the US. On the other hand, the Arab countries are not necessarily the only suppliers the US should be worrying about. There are plenty of political problems in important suppliers in Latin America and Sub-Saharan Africa. Arab countries will not necessarily be the most unstable or unreliable sources of oil in future. The figures presented above, though, may show just why the Middle East is the main preoccupation of American foreign policy.

OET ARCHIVE

'War in Iraq: it is about oil' Focus Apr03
'Iran faces US opposition in its bid to steal a march on Iraq' Focus Jun03
'Libya seeks to capitalize on new mood in Washington' Focus Apr03

Latest Developments

Oil Production

BP’s reputation and its share price have suffered a sharp decline following a blowout during the drilling of a well in the Gulf of Mexico by Transocean. BP used various waste materials including old golf balls in a vain attempt to seal the well and stem the flow of oil into the sea.

Previous:

Biofuels

OET ARCHIVE LINK: ‘Biofuels face uncertain future in EU and US’, Looking Ahead, Mar 10.

Oil Markets

In the US, crude oil markets were unsettled by a speech by former Vice-Presidential candidate Sarah Palin in which she said that President Obama should “toughen up” over Iran and “play the war card”. US heating oil futures rose after the biggest snowfall in Washington DC in 100 years. Canada meanwhile was forced to import snow to enable events to take place at the Winter Olympics in unseasonably warm Vancouver. Some US West Coast product prices rose following a severe earthquake in Chile, which damaged two refineries there.

Refining

OET ARCHIVE LINK: ‘US refiners seek relief from poor markets’, Looking Ahead, Feb 10.

Oil Imports

Saudi Aramco is to cease storing crude on the Caribbean island of St Eustatius and to store it in Asia instead, marking a shift in emphasis in Saudi sales away from the US and towards China.

Refining/Biofuels

Valero is to acquire three more US ethanol plants, which would make it the country’s second-largest producer after the long-time market leader, Archer Daniels Midland.

Refining

India’s Reliance made a bid for control of US refiner LyondellBasell, which owns the 268,000 bpd Houston refinery in Texas and the 105,000 bpd Berre unit in France. Marathon has announced it will complete the 180,000 bpd expansion of its 256,000 bpd Garyville, Louisiana refinery by 2010. Valero, however, is to shut its 210,000 bpd Delaware refinery, owing to poor US demand.

Western Refining is to shut its 17,000 bpd Bloomfield, New Mexico refinery.

OET ARCHIVE LINK: ‘US refiners contemplate dark future’, Looking Ahead, Dec 09.

Oil Production

OET ARCHIVE LINK: ‘US struggles to produce more oil’, Looking Ahead, Nov 09.

Refining

Sunoco said it was shutting its 145,000 bpd Eagle Point refinery in New Jersey to reduce losses.

Oil Industry

Occidental is to buy the trading company Phibro from Citigroup for $250 mn. Citi has been strongly criticized for the large bonus paid to the head of Phibro at a time when the US bank was in receipt of government aid to help it stay in business.

Oil Imports

A US oil trader has pleaded guilty to selling stolen Mexican condensate in the US.

The Trans-Panama pipeline has been reversed allowing oil to be transported from the Gulf of Mexico to the US West Coast

Refining

Valero and Darling International are planning a 10,000 bpd biodiesel plant next to the Norco refinery in Louisiana.

Natural Gas

OET ARCHIVE LINK: ‘Companies plan more shale gas production’, Gas & Power, Oct 09

Oil Smuggling

The US is investigating reports of widespread smuggling of refined products from Mexico.

Oil Trading

There have been calls in the US to curb the huge bonuses paid to some oil traders.

Oil Imports

OET ARCHIVE LINK: ‘Latin America battles geology and politics to prevent decline in oil production’, Focus, June09

Refining

Chevron says it is studying plans to close its 54,000 bpd Hawaiian refinery and convert it into a terminal.

Biofuels

OET ARCHIVE LINK: ‘Oil companies’ interest in biofuels grows’, Looking Ahead, June09

Oil Politics

The US Congress is drafting legislative proposals to punish oil companies that supply gasoline to Iran by imposing sanctions on those that do so in future. The country’s Environmental Protection Agency has indicated that it might impose mandatory controls on ‘greenhouse gases’, including carbon dioxide.

Refining

OET ARCHIVE LINK: ‘Refiners reassess projects as recession deepens’, Looking Ahead, Feb09

OET ARCHIVE LINK: ‘Low prices threaten high cost gas projects’, Gas & Power, Jan09

OET ARCHIVE LINK: ‘Non-Conventional oil production reassessed’, Focus, Jan 09

Refining

The US has been able to make the rare announcement of the commissioning of a new refinery, even if it is only a 5,000 bpd topping plant at North-Cut, Wyoming.

Legislators in Alaska have called for the state’s government to take a shareholding in one of the state’s refineries in order to supply fuel to Alaska at lower prices

OET ARCHIVE LINK: ‘US faces Supply Threat’, Focus, Aug08

OET ARCHIVE LINK: ‘Refining in the Americas: not enough firm projects’, Looking Ahead, May08

Oil Imports

OET ARCHIVE LINK: ‘Mexico faces collapse in oil exports’, Focus, Mar08

Oil Imports

OET ARCHIVE LINK: ‘Mexico struggles to stem production decline’, Looking Ahead, Jul07

Refining

Plans have been announced for two oil refineries in the US: a 4,000 bpd unit designed to provide fuel for a coal-producer in Wyoming and a 400,000 bpd unit in South Dakota. The latter has not yet received the necessary permits for the development, which local protesters have dubbed the ‘gorilla project’.

Oil Prices

Gasoline reached record prices in the US as inventories fell and demand rose. Average retail prices hit $3.11/gal in mid-month before falling slightly. Supplies were squeezed by a series of unexpected refinery shutdowns and problems were reported meeting new fuel specification. Partly in response to the lower than expected refinery runs, the price differential of WTI fell to a record $6.30/bbl below BFO. The US remained generally oversupplied with crude oil despite the temporary loss of 100,000 bpd of Alaska North Slope (ANS) production in yet another disruption to BP’s operations there. President George W Bush meanwhile declared that federal government departments must investigate further ways of improving US energy efficiency.

LNG

California’s Governor, Arnold Schwarzenegger, has rejected a proposal to build an offshore receiving-terminal, known as Cabrillo Port, following protests from many Hollywood actors.

Biofuels

OET ARCHIVE LINK: ‘‘Dash for biofuels prompts industry fears’’ Focus, Jun07

LNG

Chevron has abandoned plans for a 1.4 bn cfd LNG receiving-terminal at Isla Coronado, offshore from Baja California in Mexico, which was to have supplied gas to both Mexico and the US.  Isla Coronado was to have received LNG from Chevron’s Gorgon LNG project in Australia, but most of Gorgon’s output has been sold to Japan instead.

Energy Security

OET ARCHIVE LINK: ‘Latin American militancy grows’ Focus, Feb07

Natural Gas

OET ARCHIVE LINK: ‘Arctic gas proves hard to develop’ Gas and Power, Feb07

Natural Gas

US LNG imports in 2006 were reported by import terminal as follows:

Source: Petroleum Review

Oil Production

BP was forced to shut-in its 400,000 bpd Prudhoe Bay field in Alaska on 7th August, following the discovery of corrosion in a pipeline. About half of the field was reopened, but production was later cut back to 110,000 bpd. The company expects to have repaired the pipeline by early-2007.

Energy Security

Venezuela is continuing its policy of reducing its reliance on the US market by closing its Citgo-branded gasoline stations in ten states. It is also to sell its interest in the Colonial Pipeline and both its US asphalt plants. It may also dispose of some of its 900,000 bpd refinery capacity in the US.

Refining

An oil spill temporarily closed the Calcasieu Ship Channel in Louisiana, preventing crude oil supplies from reaching the important Lake Charles refining centre. Two companies requested loans from the government's Strategic Petroleum Reserve. US gasoline prices rose on fears of refinery closures, leading in turn to shortages during the 4th July holiday.

Natural Gas

The Federal Energy Regulatory Commission (FERC) has approved the following LNG terminal projects:

Refining

US Energy Secretary Samuel Bodman said that the US was likely to add 2 mn bpd of distillation capacity in the next few years.

Astra and Petrobras are to double the capacity of the 100,000 bpd Pasadena, Texas refinery.

ConocoPhillips' 247,000 b/d Belle Chasse, Louisiana refinery reopened in February after repairs following Hurricane Katrina. Murphy's Mereau refinery remains shut. Some 370,000 bpd of US Gulf output also remains off-line.

OET ARCHIVE LINK: 'US braces itself for gasoline and diesel shortages', Focus, Mar06

There are reports that a US refinery may close: Murphy Oil's 125,000 bpd Mereaux plant in Louisiana , which has failed to reopen following damage last August by Hurricane Katrina. Oil production in the Gulf of Mexico is recovering more slowly than anticipated. Most of the 373,000 bpd still out of production will remain shut-in until late summer, according to the US Minerals' Management Service.

In his State of the Union address on 31st January, President George W Bush said: " America is addicted to oil, which is often imported from unstable parts of the world." He called on the US to reduce its imports from the Persian Gulf-currently around 2.3 mn bpd-by 75% by 2025, and to "make our dependence on Middle Eastern oil a thing of the past."

Refining

Several US refiners announced plans to add capacity. Coffeyville Resources will raise crude distillation capacity by 20,000 b pd at its 100,000 bpd Coffeyville refinery in Kansas . Elsewhere in Kansas, Frontier Oil is to raise capacity at its 118,000 bpd El Dorado refinery by 11,000 bpd. Frontier is also to increase coking capacity at its Cheyenne, Wyoming plant. BP is to spend $1 bn modernizing its 460,000 bpd Texas City refinery, which was damaged in an explosion on 23rd March, 2005. The company has already had to set aside $700 mn to compensate victims of the disaster, and was also fined over $21 mn for safety violations at the plant. ConocoPhillips has had to delay the restart of its hurricane-damaged 247,000 bpd Belle Chasse refinery in Louisiana.

OET ARCHIVE LINK: 'Energy security rises to top of agenda in 2006', Focus, Jan06

Refining

Only three US refineries remain closed following this summer's hurricanes: Belle Chasse and Mereaux in Louisiana and Texas City. All three units, which have a combined capacity of 835,000 bpd, are expected on-line in the first quarter of 2006.

Several US refineries have announced plans for new capacity. ConocoPhillips has announced a $4.3 bn plan to add 230,000 bpd of capacity to its network of 12 US refineries. ExxonMobil is already adding 75,000 bpd of distillation capacity to its Baytown , Texas refinery and work is under way to add 26,000 bpd to Marathon's Detroit unit. Koch's Pine Bend, Minnesota refinery is to be extended by 50,000 bpd, whilst Valero will add 15,000 bpd at its Benicia refinery in California . Alaska 's Kenai refinery is to be upgraded to produce ultra-low sulphur diesel, though a plan to add desulphurization capacity to the state's North Pole refinery has been abandoned on grounds of cost. Marathon, Valero, Chevron, Tesoro and ConocoPhillips all plan to add upgrading capacity to several of their lower-48 refineries: in many cases to enable them to handle heavy crude from Canada . California 's Alon is to treble its asphalt production at a time when many are cutting back on capacity.

Policy

Another hurricane-this time called Wilma-interrupted oil supplies to the US. Whilst the storm itself generally avoided the US, it damaged marine installations at the Bahamas Oil Refining Company's terminal which supplies up to 200,000 bpd of low sulphur fuel oil (LSFO) to the US and Puerto Rico. The loss of supplies from BORCO comes at a bad time for US electricity generators, several of which have been switching out of gas into LSFO following the spike in gas prices caused by damage to US Gulf production following previous hurricanes ( see 'The Month in Brief', September 2005). Another major supplier of LSFO, Brazil, has cut deliveries to the US, diverting 45,000 bpd to Argentina, where a shortage of natural gas has increased demand for fuel oil.

LSFO is not the only concern for US consumers. Refinery shutdowns in the US Gulf mean that the US is short of middle distillate going into the winter heating season. The Bush administration is now considering the establishment of a series of regional product reserves across the United States . The stocks would be held at refineries and would be sufficient to cover a loss of gasoline and middle distillate supplies lasting for five days.

Policy

Various inquiries have been instigated into allegations of overcharging for refined products by oil companies in the wake of Hurricane Katrina (see last month’s Updates). The US Senate considered offering tax breaks to companies building new refineries or upgrading existing ones to produce more white products.

The state of Alaska is considering taking a $4 bn equity stake in a proposed $20 bn gas pipeline to the ‘Lower 48’ states. It wants some of the gas to be sold within Alaska and provision made for a possible LNG export terminal at Valdez.

Energy Security

OET ARCHIVE LINK: ‘Refining crisis deepens as capacity is lost on both sides of Atlantic’, Focus, Oct05.

Another hurricane, this time called Rita, battered the US Gulf Coast, sending oil prices up worldwide, though not to the heights seen when its predecessor, Katrina, arrived. As before, a large swathe of US refinery capacity was temporarily put out of action: this time mainly in Texas. For around a week in late September, when Rita arrived, nearly 4.1 mn bpd of crude distillation capacity was taken off-line. At the same time, some 0.9 mn bpd was still unusable as a result of the depredations of Katrina in late August, leaving the US briefly minus nearly one third of its refinery capacity. The situation improved as some capacity was brought slowly back on-line, but by the beginning of October around 3.0 mn bpd was still not back in operation.

The main price effects of Katrina were on gasoline, prompting demands in the Congress and elsewhere for investigations into overcharging by refiners and retailers. A record weekly increase in the first week of September propelled the average price of regular gasoline across the US to $3.07/gall. Rita’s principal effect was on heating oil, which went up in the last week of September by nearly 20% to $2.51/gall in the US Gulf. US crude oil prices remained below their immediate post-Katrina record highs despite the loss of the entire 1.5 mn bpd production in the Gulf of Mexico following Rita’s arrival.

Canadian Prime Minister, Paul Martin, has hinted that his country may try to sell more oil and gas to Asia at the expense of future deliveries to the US unless Washington stops trying to restrict Canadian softwood exports to the US.

Demand

Record gasoline prices appear to be depressing US gasoline demand. EIA data for September suggest that consumption was down by 0.2 mn bpd, or nearly 3% versus a year ago.

Natural Gas

The Federal Energy Regulatory Commission (FERC) has approved Occidental Petroleum's proposal for an LNG import terminal near San Patricio in Texas . Oxy hopes to commission the 1 bn cfd terminal in 2008.

Two Australian companies, BHP Billiton and Woodside, are lobbying California 's state government for permission to build receiving terminals. BHP's proposal is for one offshore from Cabrillo Port , Ventura County , whilst Woodside wants to build a terminal off the coast at Malibu . The Australian proposals appear to have a better chance of success than a rival onshore scheme at Long Beach supported by ConocoPhillips and Mitsubishi, which is close to a major urban area.

Lined up against the three schemes are two across the border in Baja California , Mexico : one backed by Sempra Energy and Shell, the other by ChevronTexaco. These appear to have a better chance of coming to fruition than the three north of the border, where there is considerable local opposition to any import terminals.

Energy Security

OET ARCHIVE:

'Chinese bid for Unocal sparks fears of global clash over energy resources', Focus Jul05

Policy

The US Senate passed an energy bill requiring MTBE to be replaced in gasoline by ethanol within four years of the bill's becoming law and raising the Strategic Petroleum Reserve from 727 mn bbl to 1 bn bbl. The bill cannot yet become law, however, since the House of Representatives has approved a different set of measures, including one allowing drilling in the Arctic National Wildlife Refuge and another that limits the liability of MTBE manufacturers for pollution caused by the chemical, both of which are rejected by the Senate. The two chambers will need to negotiate a bill on which they can both agree before it can go to the President for signature.

Natural Gas

The Federal Energy Commission (FERC) has approved a 2.0 bn cfd LNG terminal at Golden Pass on the Gulf Coast and a further one of 0.4 bn cfd at Fall River , Massachusetts . ExxonMobil has not yet decided whether it will build the Golden Pass terminal or develop another site on the Gulf of Mexico . The Fall River project needs further approvals before it can proceed. Meanwhile, FERC has rejected plans to expand a terminal at Providence , Rhode Island , citing safety fears.

Energy Security

OET ARCHIVE:

'Latin America loses upstream attraction', Looking Ahead, June05

Natural Gas

The US Energy Information Administration (EIA) forecasts that LNG will account for 20% of US natural gas supply in 2025, compared with only 2% in 2003. Previous EIA forecasts predicted a minor role for LNG. The change in thinking appears to have been brought about by a combination of falling production and transport costs for LNG and a rise in domestic US gas prices.

LNG gross imports are forecast as follows:

The take-up of LNG will depend on how quickly new terminals can be built. The Mexican Congress has called for an inquiry into Sempra Energy's Energia Costa Azul regasification project, on which work began in March 2005. It is proposed to re-export some of the gas from the terminal in Baja California to the US , but some politicians say the gas should remain within Mexico , while others object to the terminal on environmental grounds. Scheduled completion of the terminal is January 2008.

Natural Gas

'Generators turn to coal and heavy residues to make gas', Gas & Power, April 05

Energy Reserves

The US Department of Energy has updated its estimates of US energy reserves.

US gas reserves rose by 1% in 2003, while oil reserves fell by 3%, according to the latest report from the Department of Energy.

http://www.eia.doe.gov/oil_gas/fwd/adsum2003.html

US Energy Balance

US refining system under strain as demand soars.
OET: Focus, September 04

Energy Policy

The victory of George W Bush in the presidential election of November, 2004 could lead to new attempts to allow oil and gas exploration in two politically sensitive areas: Destin Dome, Florida and the Arctic National Wildlife Refuge (ANWR). Energy Secretary, Spencer Abraham, said he believed Republican gains in the Senate in November's election could lead to Congressional approval for drilling in ANWR, which is opposed by environmentalist groups.

The Energy Information Administration (EIA) estimates peak output from ANWR at 0.6 mn bpd, 0.8 mn bpd, or 1.5 mn bpd, depending on whether its lower, medium or higher reserve estimates are used.

Natural Gas Imports

The commissioning of Peru's Camisea natural gas project could pave the way for LNG exports to the US.
OET: Gas and Power, November 04

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