The news that Mexico will allow foreigners to search for oil and gas, and that U.S. oil production could set a new record as early as 2016 sent shock waves through the industry.
The Energy Information Administration (EIA) predicted on December 16 that oil production in the United States will grow 800,000 barrels per day (b/d) through 2016. If this occurs, domestic oil production will hit its historic high of 9.6 million b/d. With domestic crude oil production rising to 9.5 MMbbl/d in 2016, the net import share of U.S. petroleum and other liquids supply will fall to about 25 percent.
The Brent crude oil spot price declines from $112 per barrel (bbl) (in 2012 dollars) in 2012 to $92/bbl in 2017. After 2017, the Brent spot oil price increases, reaching $141/ bbl in 2040 due to growing demand that requires the development of more costly resources. World liquids consumption grows from 89 MMbbl/d in 2012 to 117 MMbbl/d in 2040, driven by growing demand in China, India, Brazil, and other developing economies.
While domestic crude oil production is projected to level off and then slowly decline after 2020, natural gas production grows steadily, with a 56 percent increase between 2012 and 2040, when production reaches 37.6 trillion cubic feet (Tcf), according to EIA.
Projected low prices for natural gas make it a very attractive fuel for new generating capacity.
In 2040, natural gas accounts for 35 percent of total electricity generation, while coal accounts for 32 percent. Electric power generation from renewables is bolstered by legislation enacted at the beginning of 2013 extending tax credits for generation from wind and other renewable technologies.
EIA also believes that LNG exports of natural gas will increase to 3.5 Tcf before 2030 and remain at that level through 2040. Pipeline exports of U.S. natural gas to Mexico grow by 6 percent per year, from 0.6 Tcf in 2012 to 3.1 Tcf in 2040, and pipeline exports to Canada grow by 1.2 percent per year, from 1.0 Tcf in 2012 to 1.4 Tcf in 2040. Over the same period, U.S. pipeline imports from Canada fall by 30 percent, from 3.0 Tcf in 2012 to 2.1 Tcf in 2040, as more U.S. demand is met by domestic production.
Alex Mills is President of the Texas Alliance of Energy Producers. The opinions expressed are solely of the author.
Total U.S. energy-related CO2 emissions remain below their 2005 level (6 billion metric tons) through 2040, when they reach 5.6 billion metric tons. CO2 emissions per 2005 dollar of GDP decline more rapidly than energy use per dollar, to 56% below their 2005 level in 2040, as lower-carbon fuels account for a growing share of total energy use.
Mexico’s Congress voted on December 12 to end the state-owned monopoly on oil and gas exploration and production, and should allow foreign oil companies to return to Mexico.
The changes allow for contracts that are seen as globally competitive, including licenses that allow foreign companies to take control of the oil as it comes out of the well. Mexico retains ownership of the oil and gas underground. Of course, royalties and taxes must be paid from the produced hydrocarbons.