UBS analyst: North America to be energy independent by 2020

By Joanne Liou, editorial coordinator

North America is on the path to energy independence, and the US will reduce its reliance on OPEC oil to zero by the end of this decade, asserts Nicole Decker, oil and gas equity sector analyst at UBS Financial Services. “This path that we are on is economic driven, not policy driven, and that’s what makes this path sustainable,” Ms Decker said at a joint Houston Chapter meeting of IADC and the American Association of Drilling Engineers on 6 September in Houston. Increased production in the US and Canada, along with lower oil demand in the US, will help North America realize this independence, she explained.

Although the US is already fairly independent when it comes to natural gas and coal, the country remains mostly dependent on imports for oil, she said. About one-third of the imported oil comes from Canada and Mexico, while the remaining two-thirds, or approximately 4.5 million bbl/day, comes from OPEC countries, Ms Decker explained.

To reach energy independence, changing the way oil is consumed will be a major factor. “The majority of the oil in the US is used as a transportation fuel – as gasoline, diesel fuel, jet fuel,” Ms Decker said. “If we’re to become more energy independent, we need to focus on the transportation industry efficiency.” Assuming that the number of cars in the US stays constant, she said, corporate average fuel economy (CAFE) standards will reduce gasoline consumption by about a million bbl/day between 2012 and 2016. In April 2012, the US Department of Transportation and EPA set CAFE standards for fuel economy to apply to 2012 to 2016 models of all passenger vehicles sold in the US. Improvements in efficiency are required this year and increasing 5% or more in subsequent years, reaching approximately 35.5 mpg for 2016. Based on the 2016 standard, by 2020, Ms Decker believes the US will reduce gasoline consumption by another 1 million bbl/day.

In the past, natural gas has been overlooked or considered unreliable to use as transportation fuel, but vast supplies enabled by hydraulic fracturing in the North American shale plays are putting natural gas on the transportation scene. “It makes sense to use natural gas as transportation fuel,” Ms Decker said. “If we convert 10% of our nation’s car and truck fleet to natural gas, that would reduce our consumption (of gasoline) in the US by another 1 million bbl/day.”

Further, Ms Decker believes the Keystone pipeline project will be approved, regardless of the outcome of this year’s US presidential election. This will help to bring in an additional 700,000 bbl/day of Canadian imports, a key contributor to the 1 million bbl/day import increase expected from the country and helping to offset the US’ 4.5 million bbl/day imported from OPEC countries.

The significance of energy independence is founded in demands from emerging countries. “Saudi Arabia can’t meet all of our needs here in the US and keep pace with growth in China and India,” Ms Decker stated. The US has historically been the largest consumer of energy, but the shift in emerging economies is driving demand to levels not seen before.

Although OPEC’s influence on the North American energy industry is waning, she noted, their stakes remain high. “Out of all the known reserves in the world, about 23% are located in non-OPEC areas. The rest of the world’s known oil reserves are in the hands of OPEC.” However, OPEC’s concerns revolve around maintaining oil prices at a level that will balance fiscal budgets, not whether the US has enough supply. “This is not necessarily a reliable source of crude oil for us. This is why these newfound supplies in the US are extremely critical,” Ms Decker said.

Beyond 2020, once energy independence is reached, the next challenge for North America will be how to maintain that independence. Although this is a much longer-term endeavor, Ms Decker says it’s a bridge that will have to be crossed. “If there is any room for legislation in the US, perhaps that would be where we focus it, not with mandates, but with research and development.”