US Future Oil Supply
The Two Best Investments in U.S. Oil Security
The biggest mistake people are making right now is believing the United States will break free from its oil dependence.
Now, we're not going to shortchange the drilling frenzy taking place; after all, there are more than 2,000 oil and gas rigs operating across the United States.
Whether or not you share the "Drill, Baby, Drill" attitude, it's happening right now. I've even been told on occasion that with all this drilling, we'll soon be back on top.
But despite our best efforts, we've only managed to increase our domestic crude production to 5.6 million barrels per day. That's it.
Do we really expect production to grow another 12 million barrels per day?
Because that's how much it would take to finally rid ourselves of our need for foreign oil. Even when you add in U.S. peak production (9.6 million barrels per day — the most we've ever produced), it still wouldn't be enough.
But there are other places the U.S. can turn to satisfy our addiction. They have everything to do with the phrase "friendly oil" that's casually being tossed around the political stage.
Beyond the OPEC
If you're looking to bet on a horse, you don't pick the one with a broken leg. Whenever the OPEC enters the picture, that's exactly what I see.
The day will come when its members won't be able to hide the effects of Peak Oil.
We saw a hint of this after learning about Saudi spare capacity over the summer...
When 1.7 million barrels of light, sweet Libyan crude was disrupted, the Saudis stepped up to the plate, assuring us they would increase production. We soon discovered the oil was of a much poorer quality — European and Asian refiners couldn't handle the heavy, sour oil that filled the gap.
And keep in mind that Saudi Arabia is heavily dependent on its giant oil fields for production. I've mentioned before that more than 90% of Saudi oil production is from just seven oil fields. The same goes for the OPEC's other leading producers, including Iraq and Kuwait. The three of them account for nearly 20% of our daily imports.
What will happen when those giant fields share the same fate as Mexico's Cantarell field?
It's no wonder Uncle Sam is looking elsewhere for its crude imports...
And two of those bets just so happen to be in the Western Hemisphere.
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The Friendly Frontiers
The first should need no introduction.
Canada is easily our largest source for oil, shipping us more than 2.6 million barrels every day. Soon, that amount will top 3 million barrels per day — and our neighbors to the north will continue to be our leading supplier for decades.
By 2035, nearly 80% of all Canadian production will come from the oil sands. I've talked before about the fundamental shift taking place in the oil sands industry right now. More importantly, it's this kind of in-situ technology that will satisfy our future oil needs.
But before we start counting our barrels, it's important to realize this oil won't come without a fight.
We're not the ones injecting billions of investment dollars into Canadian projects...
As the debate over the Keystone XL pipeline reaches a feverish pitch, China has made her intentions loud and clear.
Nearly a dozen companies — including Sinopec — have spent more than $100 million helping Enbridge get approval for its Northern Gateway pipeline, which would ship oil sands production across the Pacific.
Perhaps it's time we take a lesson in energy security from the Chinese...
Brazil's Offshore Future
Although the discovery is relatively new, the Tupi oil field will turn Brazil in a major exporter.
Since its announcement by Brazil in 2006, the field has been re-christened the Lula oil field in honor of Brazil's wildly popular leader, President Luiz Inacio Lula da Silva.
As many as 8 billion barrels of recoverable oil and gas lie in the pre-salt region, which is producing about 130,000 barrels per day. Within three years, output could top half a million barrels per day, nearly doubling the country's current crude production of 2.1 million barrels per day.
Although Brazil is still a relatively minor source of oil for the United States, it's quickly shaping up to be one of the best offshore bets today:
Their outlook gets even better. As you can see, Brazil is expected to account for 40% of non-OPEC growth to 2035:
The oil won't be cheap, that's for certain...
Petrobras (PBR) is planning to invest $224 billion over the next two years to develop the field.
That's enough cash to drill nearly 60,000 new wells in the Bakken.
If you want to find a new way to invest in our future oil supply, it doesn't get much better than this.
Until next time,
Editor, Energy and Capital