The International Energy Agency’s latest World Energy Outlook has hit the shelves and among its reams of data is this big takeaway for US investors: The organization projects that the US will become the world’s largest producer of oil by about 2020 – and will be a net exporter of crude by 2030.
Here’s why: the IEA expects that the recent rebound in US oil and gas production, which is driven by “upstream technologies that are unlocking light tight oil and shale gas resources” (read: fracking) is providing a boost to economic activity, with less expensive gas and electricity prices giving industry a competitive edge, which, in turn, is changing the role of North America in the global energy trade.
That trend is expected to combine with the increasing impact of new fuel-efficiency measures in transportation, resulting in a continued fall in US oil imports.
The IEA projects that this dynamic will accelerate the switch in direction of the international oil trade toward Asia, putting a focus on the security of the strategic routes that bring Middle East oil to Asian markets.
All of this comes amid the current slide in oil prices, which haven’t done much recently for the stocks of companies engaged in finding and producing oil.
After going north of $110 a barrel in late February, the price of oil has fallen to around $85 a barrel, as demand slumps amid what appears to be a global economic slowdown. The Black Gold motif and the Shale Gas motif are down 7.1% and 8%, respectively, in the past month. The Frack Attack motif is off 9.1%.
A thoughtful reality check was subsequently offered on the personal blog of Stuart Saniford, chief scientist of cyber-security firm FireEye.
For starters, Saniford admits to being skeptical that using a “thousand oil rigs to generate an extra one million barrels per day” of oil signals a large and long-term sustainable increase in US oil production. He notes that a sevenfold increase in drilling rigs since the mid-2000s has only produced a 20% rise in oil production. Meanwhile, both rig count and production seems to have leveled off.
Then there’s the notion that an IEA chart shows that a second US peak in oil production will have the country producing 10 million barrels a day of oil as the largest producer of oil in 2020. Saniford cites IEA data that shows Saudi Arabia currently producing 9.5 mbd and Russia at 10.75 mbd. The implication is that both will produce less between now and 2020, when the US is expected to surpass them.
Are we to believe that fracking is only going to be put to work in the US?
“Apparently the agencies have now accepted that Saudi Arabia cannot or will not increase production and the US is now being assigned the role of supplier of last resort for future energy projections,” Saniford wrote.
Performance data was as of 11/15/2012. Performance data and returns are based on past performance and are not representative of results an investor could expect to achieve. The 1-month and 3-month return shows how a particular benchmark motif could have performed over a stated period of time. Returns of individual motifs do not take into consideration certain fees and/or commissions, corporate actions, or other activity that can affect the return an investor could expect to incur. The performance results attempt to follow a standardized and consistent methodology for performance reporting. While we believe the performance data is gathered from reliable sources, the information that generates performance results uses historical data that we believe to be accurate but has not been validated and may contain errors in pricing or other conditions. Reference to return of index does not imply its performance is comparable to a motif, but rather serves to provide a reference point. For detailed information on how we calculate returns, please visit www.motifinvesting.com.