The Road to U.S. Energy Independence: The Shale Revolution and Its Implications for North America's Energy Markets

About "The Road to U.S. Energy Independence"

"The Road to U.S. Energy Independence: The Shale Revolution and Its Implications for North America's Energy Markets" addresses the complex implications for North American pricing parity, crude and product flows, refining behavior and energy policy that will arise from increasing oil and gas production and falling imports. It features a two-day Client Forum (which took place on September 10-11, 2012, in Houston and has been recorded), along with a written report and online database.

Like all PIRA multi-client studies, companies that are clients to PIRA's retainer services receive a discount.

Key Features of "The Road to U.S. Energy Independence"

Released in September 2012, "The Road to U.S. Energy Independence" — through an interactive forum, written report, and online database — features:

  • PIRA's most likely outlook for North American liquids production, including shale crude and NGLs by formation, conventional onshore and offshore production, and the outlook for Canadian oil sands and conventional production.
  • A summary of the pipeline infrastructure expected to be in place to carry the above production to market. The role of rail and trucking to supplement pipeline movements is also addressed.
  • PIRA's North American oil demand outlook by product, including the potential impact of natural gas use in transportation.
  • Crude oil supply/demand balances in the major PADDs. Combined with the outlook for infrastructure, this provides an assessment on whether we are likely to see bottlenecks drive price relationships.
  • The outlook for U.S. crude oil imports in total and by grade, with special focus on the Gulf Coast. Supporting this assumption will be an evaluation of the incentives and constraints for medium/heavy crude refineries to run higher volumes of light crude.
  • The outlook for product exports from the U.S. assuming no political restrictions.
  • The outlook for NGL balances and the prospects for propane and butane exports.
  • PIRA's most likely outlook for North American natural gas production, including shale gas by formation, conventional onshore and offshore production, and the outlook for Canadian production and exports to the U.S. 
  • The demand outlook for natural gas, including domestic demand in power generation, industry and residential/commercial, along with the prospects for natural gas penetration in transportation, examining light and heavy vehicle markets separately.
  • Anticipated LNG exports from the U.S. and Canada by location. The study also assesses the potential for GTL plants and other options for the conversion of gas to liquids.
  • The macroeconomic outlook consistent with all of this, including the prospects for energy-intensive industrial production, and the likely evolution of the U.S. trade balance.
  • Reference Case policy assumptions on trade limitations, biofuels, and fuel efficiency, reflecting the potential changes in policy as supply security becomes less important over time.
  • A price outlook for the major Atlantic Basin crude grades, products, and refining margins along with natural gas prices at key hubs.
  • In addition to the Reference Case, an outline of the key assumptions with the greatest range of uncertainty and the development of a series of alternative outcomes for volumes and pricing. These assumptions cover:
    • Production volumes of liquids and gas including the potential of state or federal policy restrictions.
    • Upside potential on demand resulting from a more powerful industrial sector renaissance.
    • Policy limitations on product and/or natural gas exports
  • Identification of the likely winners and losers in the energy industry and elsewhere in the North American economy.
  • Forecasts carried to the year 2030.

The "Road to U.S. Energy Independence" answers the following questions:

  • As the U.S. begins to reduce its crude imports, what crude qualities and sources will be displaced? The reductions cannot be only from light sweet grades as the growth in domestic production of such grades will ultimately exceed current import volumes.

  • What will these changes mean for relative crude pricing? What will set Gulf Coast light sweet crude prices if the U.S. ceases to be a significant importer of that grade? If light-heavy differentials narrow, how will refiners respond, including those refineries designed to run on medium/heavy sour imports? What are the implications for heavy crude pricing and import volumes? Will the impact be large enough to weaken global flat crude prices?

  • How will the U.S. dispose of ever growing volumes of natural gas and NGL production? What is the potential for growing domestic use? What are the limits to exports?

  • Within North America, will the infrastructure required to move crude oil from North to South (and possibly East and West) keep pace with production growth or will we be facing an extended period of inland price disconnects?

  • How will energy policy evolve in a world where supply security may not be the principal policy driver in the future? Will free market principles allow unlimited oil product and natural gas exports? Or will America-first policies seek to add additional restrictions on exports in order to force down U.S. prices? Will Canada be forced to respond by expanding efforts to increase its oil and gas exports to Asia and other alternative markets?

  • Will enthusiasm for ethanol dissipate in this new world? Tough automobile fuel efficiency standards? Natural gas use in transportation?

  • What will happen to production costs as drilling activity continues to accelerate? Will costs increase as economic rents mount as was the case in the development of the Canadian oil sands projects? Or will further improvements in technology and drilling productivity continue to drive costs down as has been the case for shale gas to date?

  • Will the U.S. undergo a new energy-intensive manufacturing boom led by relatively (on a global scale) cheap gas, gas liquids and electricity prices?

The answers to these questions are neither simple nor straightforward since they involve the interaction between regional liquids supply and demand trends and balances, refining economics, pipeline and other infrastructure assessments, and a potentially wide range of policy uncertainties. PIRA's ongoing detailed analysis of oil and gas supply/demand and balances, along with our refinery databases and flow models, make us uniquely qualified to carry out these assessments.

Study Deliverables and Timing

Companies purchasing the study will be entitled to have three users to each of the following deliverables (licensing options are available to add extra users):

Client Forum (Recorded on September 10-11, 2012, in Houston)

Given the importance of the topic and the uncertainties across the upstream and downstream, oil and gas, domestic and international markets, etc., we believe that the topic of U.S. energy independence warrants extensive discussion and the ability for clients to probe the assumptions and methodology used in an open forum. Over the course of two days, attendees have the opportunity to see a presentation of the key results, discuss those findings and their implications, and question the study’s authors.

Written Report (Released prior to the Forum)

The report outlines the findings of the study and explains the bases underlying those results, while providing a discussion of the key uncertainties that impact the major findings. The report includes an executive summary and the full set of charts, with descriptions, that are displayed during the two-day forum.

Online Database (September 2012)

  • A comprehensive database providing historical data back through 1995 and forecasts through 2030 in Excel spreadsheets for:
  • Shale oil production (crude and NGL) by formation and by U.S. state and Canadian province; total crude by state and province; and total NGL by country.
  • Oil product demand by end-use sector and product.
  • Crude oil supply/demand balances for sub-regions within North America.
  • U.S. crude and product gross and net import projections with quality breakouts.
  • Price forecasts for key North American crude and product markets and the relationship between North American and key international prices.

More About "The Road to U.S. Energy Independence"

Background of, and Motivation for, the Study

After 40 years of largely unsuccessful policy attempts to reduce U.S. energy import dependence, imports are now in structural decline. The lack of demand growth has certainly played a role and the combination of past and future energy policies will soon usher in a period of declining demand. However, the reversal in net imports is primarily due to an abrupt shift in supply trends resulting from a combination of continued progress in drilling technology, the creativity of upstream entrepreneurs in utilizing that technology on a well known resource base, and a price level that has made pursuit of these higher-cost opportunities economically attractive.

The trend has been extremely powerful in the case of natural gas, as the U.S. market rapidly turned from a future of large LNG imports to one where it has the potential to be the next major LNG exporter. The revolution has now moved on to liquids — both crude and NGLs — and while the U.S. is likely to remain an importer for some time, the volumes will be in decline from this point forward and the composition (both source and quality) will be rapidly changing. In fact, much of the conventional wisdom regarding pricing parity, crude and product flows, refining behavior and even energy policy may no longer be true in this new U.S. energy world.

These trends will not be news to those paying attention to press reports.  However, many of the specific implications for the industry are complex and have not yet been fully analyzed — until now. With the multi-client study, "The Road to U.S. Energy Independence: The Shale Revolution and Its Implications for North America's Energy Markets," PIRA is undertaking such an assessment.  The study’s findings will be provided to clients during a two-day forum, as well as through a written report and online database, where each key sector will be addressed in detail.

The study addresses wide ranging issues such as pricing parity relationships between U.S. crudes and international crudes; the response of U.S. refiners to changing incentives to run light sweet vs. heavier crudes; the outlook for U.S. oil products, NGL and natural gas exports; and even the macroeconomic and policy implications of a world of ever-declining imports.

Fees and Options

"The Road to U.S. Energy Independence: The Shale Revolution and Its Implications for North America's Energy Markets" can be purchased by both PIRA retainer clients as well as non-clients.  Existing PIRA retainer clients receive a reduced price.

The standard fee allows for three users to the study; extra report copies and database/Forum passwords can also be purchased.