Reuters reported that forget America's fiscal cliff, Europe's currency troubles or the emerging markets slowdown. The most important story in the global economy today may well be the coming surge in oil production around the world.
Until very recently, our collective assumption was that oil was running out. That was partly a matter of what seemed like geological common sense. It took millions of years for the earth to crush plankton into fossil fuels it is logical to think that it would take millions of years to create more. The rise of the emerging markets with their energy hungry billions was a further reason it seemed obvious we would have less oil and gas in 2020 than we do today.
Obvious but wrong. Thanks in part to technologies like horizontal drilling and hydraulic fracking, we are entering a new age of abundant oil. As the energy expert Mr Leonardo Maugeri contends in a recent report published by the Belfer Center at the John F Kennedy School of Government at Harvard, contrary to what most people believe, oil supply capacity is growing worldwide at such an unprecedented level that it might outpace consumption.
Mr Maugeri a research fellow at the Belfer Center and a former oil industry executive bases that assertion on a field by field analysis of most of the major oil exploration and development projects in the world. He concludes that by 2020, the world's oil production capacity could be more than 110 million barrels per day, an increase of almost 20 percent.' Four countries will lead the coming oil boom Iraq, the United States, Canada and Brazil.
Mr Maugeri said that much of the new oil is coming onstream thanks to a technology revolution that has put hard to extract deposits within reach Canada's oil sands, the United States' shale oil, Brazil's presalt oil. The extraction technologies are not new but the combination of technologies used to exploit shale and tight oils has evolved. The technology can also be used to reopen and recover more oil from conventional, established oilfields.
Mr Maugeri thinks the tipping point will be 2015. Until then, the oil market will be highly volatile and prone to extreme movements in opposite directions. But after 2015 a glut of oil which could lead to a fall or even a collapse in prices. At a time when the global meme is of America's inevitable economic decline, the surge in oil supply capacity is an important contrarian indicator.
He calculates that the United States 'could conceivably produce up to 65 percent of its oil consumption needs domestically. That national energy boom is already providing a powerful economic stimulus in some parts of the country just look at North Dakota. Crucially, at a time when one of the biggest social and political problems in the United States is the disappearance of well paid blue collar work particularly for men, oil patch jobs fill that void.
Source - Reuters
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