Optimism growing over U.S. oil self-sufficiency

November 19, 2014 | By Barbara Vergetis Lundin

The United States currently has enough affordable natural gas production to meet rising and changing sources of demand, and will be self-sufficient in oil in five to 10 years, according to oil and gas decision makers surveyed recently by Deloitte LLP.

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There has been a 150 percent increase in the number of respondents who think the U.S. is or will be self-sufficient in oil within the next five years (20 percent), compared to the results of Deloitte's 2012 survey. The vast majority (90 percent) believe the U.S. now has enough affordable domestic natural gas production to meet rising and changing sources of demand. The rosy production outlook may have contributed to a general sense of industry optimism, with 80 percent of respondents believing the U.S. energy situation has improved versus five years ago and is headed in the right direction.

"The recent shake-ups in prices, politics and regulations provide a compelling backdrop to evaluate the responses provided in the survey; as the industry tests the waters with respect to shale's resilience during a cycle of low prices, only 15 percent of respondents at the time expressed that they were very or extremely concerned about a possible price collapse," said John England, vice chairman and U.S. Oil & Gas leader for Deloitte LLP. "The industry is watching politics and prices closely especially when it comes to exports -- an issue seen as crucial for continued success, with 83 percent of respondents indicating that exports are important for the long-term viability of unconventional oil and gas production in the U.S."

Additional concerns expressed by respondents were related to costs. Those who believed oil and gas capital spending would rise remained fairly constant with more than half (56 percent) expecting more capital spending in 2015. Half of the respondents expect an increase in merger and acquisition activity over the next year. More than 80 percent of the respondents believe that downstream profitability will strengthen or remain the same even as the industry continues to deliver strong results.

"The survey revealed continued positive momentum regarding the optimization of U.S. shale," England noted. "Shale development remains the lynchpin of the North American Energy Renaissance, and improving extraction technologies and methods as well as improved midstream infrastructure are fueling the growth of production."

Sixty-six percent of respondents believe that technological advancements in shale extraction have improved the economics of shale; 44 percent point to the smaller environmental footprint of shale as a significant improvement.

Despite growing optimism over shale innovation, potential federal regulations was the greatest concern among respondents (65 percent) -- nearly double the next greatest concern of cost margins (38 percent). In fact, 48 percent of respondents were very or extremely concerned about new EPA regulations that could negatively impact the economics of shale -- a concern that may continue to grow in a low-price environment. The responses indicate that once established and known by the industry, regulations can be easily incorporated into standard operating procedures; however, regulatory uncertainty can interfere with the ability of industry to plan and can potentially prevent new projects from moving forward.

"The impact of the midterm elections on slowing down potential federal regulations and acceleration of major infrastructure projects is still unclear," England explained. "At the surface, Republican control of the legislative agenda would appear to amplify the sense of industry optimism, but there remain ample opportunities for continued gridlock since GOP's margin of victory in the Senate does not leave them with a large enough majority to avert the threat of a Democratic filibuster that can keep legislation locked in procedural limbo."

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