As a growing hydrocarbon net exporting centre with the lowest cost of natural gas feedstock in the world and propelling exports of energy intensive goods from petrochemicals to steel, North America could well become the new Middle East by the next decade. The only obstacles are political, based on either environmental objection (US), revenue-sharing difficulties with local groupings (Canada), or constitutional impediments to foreign investment (Mexico).
Technological advancements, combined with robust resources bases, could lead to a near-doubling of oil production in each of the three countries of North America, at a time when US consumption – already down by 5% – is likely to fall by at least another 10%. Between the continued development of oil sands and a surge in production in tight oil resources, Canada should see 2020 production up by as much as 2.5-m b/d. The US could see Alaskan and deepwater oil production grow, and Mexico could see an increase in onshore tight oil and offshore deepwater drilling. Total North American output could rise from 14-m b/d in 2010 to 25-m b/d by early next decade.
Meanwhile, the shale gas revolution should continue, keeping North America in net surplus and creating a robust energy intensive industrial base with additional energy exports embodied in finished goods. This would feed into an industrial employment boom that few people expect today, not to mention totally re-shaping the current US account structure.
What's to stop this? Political trade-offs that are seriously entrenched, especially in the US and Canada, and antiquated resource nationalism in Mexico impeding foreign investment.
Dr. Ed Morse is a Managing Director and the Head of Global Commodities Research at CitiGroup Global Markets, Inc. in New York. He previously held similar positions at Lehman Brothers, Louis Capital Markets and Credit Suisse. Widely cited in the media, he is a contributor to journals such as Foreign Affairs, the Financial Times, the New York Times, and the Washington Post. A former Princeton professor and author of numerous books and articles on energy, economics and international affairs, Ed was the publisher of Petroleum Intelligence Weekly and other trade periodicals and also worked at Hess Energy Trading Co. (HETCO).