Beyond BP: Looking Past the Oil Spill
Finding Our Next Oil Fix
Put the BP cleanup aside, if even for a few minutes.
I know it'll be difficult... Between the latest news on the cleanup efforts and the fact that everyone has a magical — and often ridiculous — solution to the problem, the media is on BP overload.
After sifting through hundreds of e-mails lately, I've noticed a common theme: What's next?
Today, we're looking further down the road.
And trust me, dear reader... It's a little more complicated than simply saying that onshore plays will be more attractive than the deepwater fields. Even my four-year-old niece knows that much...
What most people don't realize, however, is just how bad things are going to get.
A brewing oil crisis
One thing we can always count on to exacerbate a situation is a politician who needs a second term. Having said that, I have no doubt in my mind that President Obama will extend the current drilling moratorium in the Gulf of Mexico.
That's a given.
The level of outrage at BP, much of it justified, will send Obama into an apologetic, sheepish state of politics. As you can guess, appeasing the public's ire involves a deepwater drilling ban for years to come.
In fact, countries around the world are eager to hop on the moratorium bandwagon.
According to the International Energy Agency, an extended global moratorium on new offshore drilling areas could cut the world's offshore production by as much as 900,000 barrels per day. It would take less than five years to happen.
In the Gulf of Mexico, up to 300,000 barrels of oil per day could be lost if new projects are delayed. At the very least, we can count on that lost oil from the Gulf of Mexico.
Unfortunately, it's not just the deepwater oil that we're losing each year.
Past the peak
We know that U.S. oil production isn't teetering on the brink of collapse — it is collapsing.
This shouldn't come as a surprise to us.
If it does, then you might be new around here.
Last year, only six states managed to increase their crude oil production: West Virginia, Kentucky, Mississippi, Utah, Oklahoma, and North Dakota.
I know what you're thinking... That's not so bad, right?
At least six states were able to produce more oil.
Let's put this into perspective.
With the exception of North Dakota, remember that we aren't exactly talking about the most prominent oil producers. The combined production increase from the five others amount to less than 14,000 barrels per day.
In fact those states (again, sans North Dakota) that managed to increase oil production together produce less than one-third of the amount Texas does.
If the mediocre producers are able to increase production, we can expect our larger producers to pull out the big guns and improve oil production, can't we?
Things get even worse when you look at our top oil-producing states: Texas, California and Alaska. Together, they make up 43% of our total oil production.
Not too shabby, you say?
During the last twenty years, both Texas and California managed to increase year-over-year oil production twice. Alaska only did it once.
You can see the bad news for yourself here.
As oil prices surged to $147 per barrel, Texas was the only one of the big three to increase production. And even then, it was only by a mere 2%.
One state, destined to rule them all
I'll admit I left North Dakota out of the picture above... And that's because my outlook for North Dakota is in a league of its own.
Although the top three oil producing states have a dismal track record, North Dakota has been able to increase its oil production for six straight years. As you are well aware, its success lies solely from the Bakken formation.
But if you want an idea of how important the Bakken is, remember that the formation makes up nearly 60% of the state's oil production. By the end of the decade, between 500,000 and 600,000 barrels of oil could be pumping out of Bakken wells.
The fact is that the Bakken has become oil's game-changer.
Of course, even that won't save us from peak oil... We'll eventually have to get our oil fix from more sources.
This should be a no-brainer.
Take away the potential production from deepwater prospects, add peak oil into the mix, and we're in for a tight ride for our oil addiction.
Well, we can count out Mexico... If Chavez keeps up his antics, we can definitely forget about Venezuela's ability to develop their heavy oil assets.
We can even cross Russia off our list, too. Unless Russia doesn't change its laws, exploration will be restrained and Russian oil and gas production could begin declining by 2012. Exploration has dropped more than 65% this year. The problem is that the new fields are signed to the state — not the company that made the discovery.
Can you really blame them for not pursuing new fields?
It's a good thing we have an energy powerhouse for a neighbor.
Right now, investors have an unprecedented buying opportunity. And believe me, it's not limited to just one field or formation. The entire country is rushing to develop its energy sources. It has become a win-win situation for my readers.
And I'll tell you all about it all next week.
Until next time,
P.S. Next week, I'm going to shed some light on an oil patch that is starting to turn heads in Canada. Geologists are even referring to this area as "the next Bakken." Now, I understand a few of you don't like to sit around, twiddling thumbs as other investors get the jump on an opportunity.
So if you want to get ahead of the game, feel free to check out my free report right now. Simply click here to learn more about this opportunity.