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OWOE - Blog
North America Energy Alliance, Round 2
August 24, 2021

Guest blog by S. A. Shelley: At OWOE we try to be objective in our analysis and evaluations of energy matters. But we can't always be emotionless, or in my case, I can't always refrain from smacking my forehead when politicians do questionable things: I've been near comatose for the last few weeks on account of the politicians.

In 2017, we looked at and forecast possible outcomes for US energy independence, including oil and gas production (see OWOE: Can the US Become Energy Self-sufficient?). We looked at four possible outcomes, as in the following figure, based upon high / low consumption versus high / low production.

Fig. 1 - US Oil Production Outcome Matrix (2017)

At the time I voodoo guessed that it was more likely that the U.S. would be moving into a high consumption and low production case, resulting in big oil deficits. I think we're in danger of moving into that condition sooner than later.

According to a US EIA estimate at the beginning of this year, US oil production will fall this year before rebounding next year to  a maximum of 12 million barrels per day. Subsequent reports suggest that the EIA prediction was pretty good. Furthermore, there are now industry wide concerns of all big oil companies underinvesting in new production (see Market Insights, Natural Gas Intel). Thus, it is very likely that the US won't achieve the 17 million bbls / day production required in the high production case indicated in Figure 1, and could in fact start seeing production fall to the low case of just 7 million bbls / day in a few years. In contrast, the US is already approaching demand of over 20 million bbls day, which is the 2017 high consumption limit. These two factors put the US in the in the high consumption and low production quadrant, which is not good.

Under production (supply), coupled with somewhat steady demand, results in rising oil prices. It takes years for US E&P firms to find and bring on stream new production. So instead of waiting for or encouraging US businesses to find new oil resources, the US President asks OPEC to increase supply. That one really hurt my head. It was an especially egregious policy initiative in light of the fact that the current US administration has stopped most new oil projects in Alaska, Texas, Louisiana (see ABC News and CNBC) and of course, pipelines.*

Up north, in Canada, there are billions and billions of barrels of oil that can supply the American market. It would just take a bit of pipeline expansion. But no, instead of supporting a near trading partner with historically similar democratic values, the US president would rather send more US dollars to hostile states: Make no mistake, most OPEC states are not US allies or friends.

But there may be hope for America. Both big Canadian railroad companies are in a takeover war for Kansas City Southern. This is not a railroad battle, this is a battle to transport oil in the near future. As oil pipelines are being stopped, rail is becoming a major means of transporting oil.

The problem for America is that it will need a lot oil during the green transition, and America is no longer in a position to supply all its needs domestically. Oil by rail is a temporary solution at best. It really is time to think about a North American Energy Alliance (see OWOE: Time for a New Energy Policy) and forget those way-off hostile lands. Make the deal with the neo-communists up north, because then we can keep a close eye on them for much lower cost and less blood. Building an energy alliance of some form with friendly states will be necessary to keep America from running out of oil, because green technology cannot replace oil fast enough to keep the woke progressives happy. It still is, unfortunately, a trade-off between keeping energy and the economy going, or collapsing society and the economy until green technology catches up to the energy demands of a modern society. As written previously, green is better, but overnight green is impossible (see OWOE: Wishful Thinking vs Reality). 

Vive l'Alberta Libre!

*  Really, shut down Line 5. People are focused on the “perceived dangers” of a not yet built pipeline, Keystone XL, while ignoring the real danger of an existing pipeline, Line 5 in Michigan.

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