The next face of America

.”..The most momentous change looks likely to be in the re-industrialization of America based on dramatically lower cost feedstock than is available anywhere in the world, with the possible exception of Qatar. The economic consequences from this supply and demand revolution are potentially extraordinary. We estimate that the cumulative impact of new production, reduced consumption and associated activity may increase real GDP by 2.0 to 3.3%, or $370-$624 billion (in 2005 $) respectively. $274 billion of this comes directly from the output of new hydrocarbon production alone, while the rest is generated by multiplier effects as the surge in economic activity drives higher wealth, spending, consumption and investment effects that ripple through the economy. This potential re-industrialization of the US economy is both profound and timely, occurring as the US struggles to shake off the lingering effects of the 2008 financial crisis.”

This long  paragraph  taken from the presentation of the study  “Energy 2020“prepared by Ed Morse  and a group of young  experts for Citygroup,   seems very relevant, not  only  because of the  figures of the future production  of oil and gas, which are in fact quite stunning, but  because  the  idea that industry must get back to its historic role of income production. After years and years of hearing that services are the important thing for the economy, there is a well thought out study which presents a blueprint   for the “reindustrialization” of America.

North America Total Liquids Supply Projection  MBD

Source : Edward Morse et al. Energy 2020 (Citygroup

US Liquids Supply Projections  MBD

Source  :Edward Morse  et al. Energy  2020 (Citygroup) 

The figures in the  two tables  are quite  astonishing , but   Ed Morse’s study is perfectly  presented , with a  good support of tables and  maps , and there they must have  a much larger technical information than the one that they chose to publish. The great development of the production of natural gas in the USA, which will probably turn it into an exporter, is by now a fact, and crude oil will certainly follow.

The first table we reproduce here is quite surprising. The USA is foreseen to reach by 2020 a level oil production   never reached by any producer. Moreover, the table puts together three countries , near to each other , having a sustained oil production .The total for these them   is foreseen  being in 2020  higher  than  the present production of all OPEC Countries. The second table tells us that the great increase in production will be due to new, or almost new, technologies: deepwater, shale oil, permafrost, non conventional heavy crude, and even Biofuel that the oil people have spurned until now.
The implications of such numbers are many and of a great relevance all.

The numbers  in that study   give a precise answer to  those that may still believe that oil reserves are  dwindling ,  and based their conclusion from the exhaustion of the  USA natural gas production,  exactly the area in which the new technologies  have given the most astonishing  progress. The disaster of dwindling oil and gas reserves in the world is not near, and the matter basically depends on technology.

Of course it the study does not present its own results it as an easy job, nor does it makes it too easy. Such a progress in oil production will certainly require the solution of a lot of   problems with the public opinion, and with the electors, and a general drive of the economy back to the traditional energy sources.

The moment in which the study appears is not perhaps a lucky combination. It is a clear proposal to the next President  to follow  a “reindustrialization” course,  to  pay attention to   the internal market and  the internal production capacities,  and  at the same time a  proposal  that the USA regain their operational  freedom  in the world theatre , abandoning the  constraints  created by the imports of crude oil , and by the need to keep the oil routes open under any condition. Summing the production on the USA, Canada and Mexico seems perhaps to envisage the new direction of a USA foreign policy.

The study  is  a proposal  to give a new life to the industry , which has been  generally neglected in a country  fascinated by  investments abroad, and by  finance , and by its  immediate  consequence, speculation. It is also a proposal to reorient the regulatory effort in a way that would help the development of the internal production. The US has been for a long time   dependent from imports of crude oil.  Eisenhower closed the internal market to foreign oil, and that was the last attempt to   maintain a self sufficient oil industry. After that, the internal production dwindled, and the US had to resign to the fact that imports would be inevitable. At the start of the Presidency of Bush son the study prepared by the Vice President   proposed   to resuscitate the notion of self sufficiency, but in vain. The development of technology has changed everything. 

Energy is from now onwards an internal problem of the USA, and the country foreign policy may gain a huge area of freedom. It may also reduce the importance of Europe, which is increasingly seen as inward looking, grappling ineffectively with a protracted financial crisis which has been translated in a serious economic slowdown.  However, the most important consequence is probably on the oil industry, and on the position of OPEC.

A USA independent from imports of crude oil means  necessarily  a reduction of the OPEC  control not only because of the  reduced demand, but also because the  price of crude oil will be dictated from the USA , and not simply as an indicator, a basis for  defining  a price as it has been in recent years. The most important effect may be, in fact, a return of the USA to industry and physical production. The idea that  production is necessarily international, that  exporting capital is the real way  to make  it pay , that   production in the USA is not the best way to make money   will be  receding , and perhaps the problem of unemployment  will be solved by the return to  material production.