Because oil is a widely traded commodity, analysts say the upsurge in production in the Americas does not mean the United States will be immune to price shocks. If Iran were to close off the Strait of Hormuz, stopping tanker traffic from Middle East suppliers, a price shock wave would be felt worldwide.
But the new dynamics for the United States — an increasingly intertwined energy relationship with Canada and more reliance on Brazil — mean U.S. energy supplies are more assured than before, even if oil from an important Persian Gulf supplier is temporarily halted.
The fracking ‘revolution’
Perhaps the biggest development in the worldwide realignment is how the United States went from importing 60 percent of its liquid fuels in 2005 to 45 percent last year. The economic downturn in the United States, improvements in automobile efficiency and an increasing reliance on biofuels all played a role.
But a major driver has been the use of hydraulic fracturing. By blasting water, chemicals and tiny artificial beads at high pressure into tight rock formations to make them porous, workers have increased oil production in North Dakota from a few thousand barrels a day a decade ago to nearly half a million barrels today.
Conservative estimates are that oil and natural gas produced through “fracking,” as the process is better known, could amount to 3 million barrels a day by 2020.
“We have a revolution here,” said Larry Goldstein, director of the Energy Policy Research Foundation in New York. “In 47 years in this business, I’ve never seen anything like this. This is the equivalent of a Category 5 hurricane.”
All of this has happened as exports from Mexico and Venezuela have fallen in recent years, a trend analysts attribute to mismanagement and lack of investment at the state-owned oil industries in those countries. Even so, there is a possibility that new governments in Mexico and Venezuela — Mexico elects a new president July 1, and Venezuelan President Hugo Chavez has cancer — could open the energy industry to the private investment and expertise needed to boost production, analysts say.
“There’s a lot of upside potential in Latin America that will boost the oil supply over the medium term,” said RoseAnne Franco, who analyzes exploration and production prospects in the region for the energy consultant Wood Mackenzie. “So it’s very positive.”
Much of the exploration, though, will not be easy, cheap or, as in Argentina’s case, free of political pitfalls. Price controls on natural gas and import restrictions have made doing business in Argentina hard for energy companies. And last month, President Cristina Fernandez de Kirchner’s populist government stunned oil markets by expropriating YPF, the biggest energy company here, from Spain’s Repsol.
But the prize for energy companies is potentially huge. Repsol estimated this year that a cross section of the vast Dead Cow formation here in Neuquen province could hold nearly 23 billion barrels of gas and oil. That followed a U.S. Energy Information Administration report that said Argentina possibly has the third-largest shale gas resources after China and the United States.
“All the top-of-the-line companies are here,” said Guillermo Coco, energy minister of Neuquen province, including ExxonMobil, Chevron and Royal Dutch Shell. Although only about 200 wells have been drilled, Coco said companies here talk of drilling 10,000 or more in the next 15 years.
Wells on the horizon
On a recent day here in a dusty spot called Loma La Lata, German Perez oversaw a team of 30 technicians from the Houston-based oil- services giant Schlumberger as they prepared to frack a well.
The operation was huge: Trucks lined up with revving generators. Giant containers brimmed with water. Hoses used for firing chemicals into wells littered the ground. Cranes hoisted huge bags of artificial sand into mixers. Then, 1,200-horsepower pumps blasted water, chemicals and sand nearly 9,000 feet into the earth. “This is a hard rock, so we create countless cracks and fissures, for the gas and oil to flow,” Perez said.
Staring at the stark landscape, broken up here and there by oil rigs, Perez said he thought many companies would one day arrive in search of oil and gas. “The projections are pretty good,” he said. “In our case, we have been here a year and a half and we have tripled the equipment we have. And we think we will double that in another year.”