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AMERICAN OIL ENERGY INDEPENDENCE. IN THE REAL WORLD. Dr. John Anthony Scire, PhD, 6 February 2013. THE OPTIMISTS PREDICT US WILL BE INDEPENDENT OF OUR RELIANCE ON IMPORTED OIL IN TEN YEARS . - PowerPoint PPT Presentation

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{AMERICAN OIL ENERGY INDEPENDENCE IN THE REAL WORLDDr. John Anthony Scire, PhD, 6 February 2013THE OPTIMISTS PREDICT US WILL BE INDEPENDENT OF OUR RELIANCE ON IMPORTED OIL IN TEN YEARS (IF WE OPEN UP ALL OF OUR FEDERAL LANDS FOR DRILLING, INCREASE FRACKING, AND BEGIN TO EXPLOIT THE OIL SHALES IN THE GREEN RIVER FORMATION.)This ten year figure seems to be the consensus in the US press (financial, energy, political)

(FYI: THE GREEN RIVER FORMATION AND OTHERS NEARBY HOLD AN ESTIMATED 1.44TBL WHICH EQUATES TO 200 YEARS WORTH OF CONSUMPTION , (USGS) BUT NONE OF IT IS ECONOMICALLY VIABLE AT THIS TIME (DOE) )

3SO PEAK OIL IS A THING OF THE PAST????REALLY?

5A REALITY CHECK ON PEAK OIL PRODUCTIONTHE WORLD PEAKOF OIL PRODUCTION IS NOW ESTIMATED TO BE BEYOND 2040 .. BUTIEA 2012 World Energy Outlook7WHO CARES ??

THE US WILL NOT EXCEED ITS 1970 PEAK FOR THE FORESEEABLE FUTURESource: The US DOE, the IEA, and BP Annual Outlook 2012.8THE ENERGY INFORMATION AGENCY OF THE US DOE PREDICTS U.S. tight oil production leads a growth in domestic production of 2.6 million barrels per day between 2008 and 2019

U.S. crude oil production million barrels per daySource: EIA, Annual Energy Outlook 2013 Early Release9Adam Sieminski January 5, 2013Tight oilAlaskaOther lower 48 onshoreLower 48 offshoreProjectionsHistory201199FYI, THE EXPRESSION Peak Oil as it pertains to the US is still relevant and that date was in 1970 when we peaked at 11.2 MBD. This EIA prediction doesnt even put us close to a higher production than in 1970. What the Energy Independence people miss is that the old fields decline at an average rate (after they hit their peak) about 5% a year to as high as 8% a year. Now new fracking techniques are being used in old fields so that decline has declined but look at Alaska and lower 48 on shore charts!BP says US still imports 35% in 2030

DOE says US still imports 37% in 2040

IEA says US still imports 16% by 2035 (but all of it from the Western Hemisphere, mostly from Canada)A REALITY CHECK ON IMPORTSBP ENERGY OUTLOOK 2030AEO 2012, EIA of the DOEIEA Annual World Energy Outlook, 2035, 3.4mbd of 20mbd predicted consumption for the US in 2035 or 16.75%.10AND WE WILL STILL IMPORT UP TO 37% OF OUR LIQUID FUELS in 2040

Source: EIA, Annual Energy Outlook 2013 Early ReleaseU.S. dependence on imported liquid fuels continues to decline in the AEO2013 Reference case, primarily as a result of increased domestic oil production. Imported liquid fuels as a share of total U.S. liquid fuel use reached 60 percent in 2005 before dipping to 45 percent in 2011. The import share continues to decline to 34 percent in 2019 and then rises to about 37 percent in 2040, due to a decline in domestic production of tight oil that begins in about 2021 (Figure 11).

11BUT HOW IMPORTANT IS OIL TO OUR ECONOMY???

PETROLEUM IS ONLY 35.28% OF TOTAL ENERGY CONSUMPTION BUT IN EXCESS OF 90% OF TRANSPORTATIONS ENERGY USEHOW IMPORTANT IS OIL TO THE AMERICAN ECONOMY?BUT THEFRACKING GAS WILL SAVE US!!!SHALE GAS DOUBLES GASPRODUCTION BY 2040

U.S. dry natural gas production in trillions of cubic feet Source: EIA, Annual Energy Outlook 2013 Early ReleaseAssociated with oilCoalbed methaneTight gasShale gasAlaskaNon-associated onshoreNon-associated offshoreProjectionsHistory20111515Note: This slide was adapted from the Adam Sieminski EIA News Release Powerpoint, January 5, 2013.

BUT CONSUMPTION IS GOING UP AND LNG EXPORTS WILL GO UP SOONNATURAL GAS CONSUMPTIONBY TRANSPORTATIONQUADRILLION BTUsNote: Gas to liquids includes heat, power, and losses.Source: EIA, Annual Energy Outlook 2013 Early ReleasePipeline fuelLight-duty vehicles2011HistoryProjections95%3%1%1%28%38%3%31%1%BusesFreight trucksGas to liquidsNote: This slide was adapted from the Adam Sieminski EIA News Release Powerpoint, January 5, 2013.

17In 2005, 2,085 gigawatt hours per day

In 2012 , 3,358 gigawatt hours per day

This is a growth in Electricity Generation Use of 47%IN JUST 7 YEARS

NATURAL GAS CONSUMPTION BY ELECTRICITY GENERATIONGrowth in Natural Gas use for Electricity Generation*In 2005 - 2085 gigawatt hours per dayIn 2012 - 3358 gigawatt hours per dayThis is a growth in Electricity Generation of 47%.Natural Gas share of national Electrical Generation went from 18% to 30%Coal share dropped from 49% to 37%. *Source: Short Term Energy Outlook, January 2013, US EIA, Figure 25

18

NATURAL GAS CONSUMPTION BYEXPORTATION

U.S. natural gas exportstrillion cubic feetSource: EIA, Annual Energy Outlook 2013 Early Release19Alaska LNG exportsExports to MexicoExports to CanadaLower 48 LNG exports1919Note: This slide was adapted from the Adam Sieminski EIA News Release Powerpoint, January 5, 2013.

If the proposed terminals were built, then exports could be 24 bcf/d20AND THEN PRICES GO UP TO WORLD MARKET PRICES WHICH ARE 5 TO 9 TIMES HIGHER THAN THE USSTEO, Short Term Energy Outlook, EIA, Dec. 2012, shows U.S. price returning to $4 per mmbtu in 2014 with Europe 5 times US levels and Asia 8 times, but, once LNG exports from both the US and Canada start to pick up in 2015 prices will level out more than they are now. 21NATURAL GAS WILL NOT MAKE US ENERGY INDEPENDENT BUT IT WILL CONCLUSION:22TIME TO REDUCE OIL ENERGY CONSUMPTION BY INCREASING EFFICIENCY AND ALTERNATIVES....BUY US TIME.

BECAUSE EVEN THOUGH OUR DOMESTIC CONSUMPTION HAS DECLINED AND WILL CONTINUE TO DECLINEChart is from the EiAs Today In Energy newsletter article of December 14, 2012 Energy Perspectives: Fossil fuels dominate U.S. energy consumption---the following verbiage was extracted from said newsletter..While the United States produced a record 78 quadrillion Btu (quads) of energy in 2011, it consumed more than 97 quads of energy in various forms. Nonrenewable fossil fuels made up more than four-fifths of U.S. energy consumption. As has been the case since 1950, petroleum was the most-consumed fuel in 2011, at 35.3 quads down.. from its peak historical level of 40.4 quads in 2005. Natural gas accounts for almost 25 quads compared to coal's 20 quads in 2011. Natural gas and renewable energy were the only fuel sources whose consumption increased in 2011.

Renewable energy consumption surpassed nuclear in 2011, with 9.1 quads compared to nuclear's 8.3 quads. Renewable energy includes 4.4 quads of biomass energywood, wood waste, and the biomass portions of fuel ethanol and biodieselas well as 4.7 quads of noncombustible renewable energy, which includes conventional hydroelectric power, geothermal, solar thermal, photovoltaic, and wind

24WORLD DEMAND FOR OIL WILL GO FROM 85 MBD TODAY TO OVER 103 MBD BY 2030

96% OF THAT GROWTH WILL BE FROM NON-OECD COUNTRIES. WORLD DEMAND WILL INCREASE DRAMATICALLY Source IEA World Energy Outlook, 2012

Note: Both the BP Energy Outlook for 2030 and the DOE Annual Energy Outlook-2013 agree with these estimates by the IEA.251. OPECS SHARE OF PRODUCTION GOES UP TO 45% (BP/IEA)

2. US WILL HAVE TO PAY WORLD PRICES AND.

3. NET IMPORT BILLS WILL NOT GO DOWN (OPEC will still have pricing power) SOOOOOOOOOO AND WORLD PRICES WILL NOT DECLINEFYI, OUR COSTS OF OIL IMPORTS: $326.5 billion in 2011 wasits second-highest total ever just slightly less than in 2008, DESPITE A ABSOLUTE DROP IN IMPORTS BY 15% SINCE THE PEAK IN 2005..

SO IMPORTS DOWN BUT PRICES UP.. SO A NET INCREASE IN TRADE IMBALANC DUE TO OIL26NO TOTAL INDEPENDENCE BUTTHE GOOD NEWS IS.NO NEED TO IMPORT ANY OIL FROM THE MIDEAST BY 2020This is based on the fact that our consumption is declining as production in the western hemisphere is growing and we currently only import about 10% from the Middle East, according the EIA AEO 2012. The AEO 2012 shows virtually no imports from the Middle East by 2035, with 90% of their oil going to Asia, and all of our imports coming from Canada, Mexico, Venezuela, Columbia, Brazil, and maybe West Africa.28SO LETSDISCUSS THE NATIONAL SECURITYPOSSIBILITIS

30JOHN.SCIRE@WELLSFARGOADVISORS.COM

{31CENTCOM ROLE DIMINISHES VIS--VIS THE OTHER COMS

ISRAELS IMPORTANCE DIMINISHES

IRANS IMPORTANCE DIMINISHES

THE TRADE DEFICITS DRAIN ON AMERICAN CAPITAL DIMINISHES

32MORE SECURITY POSSIBILITIES OIL DISRPUTIONS WORLDWIDE DUE TO DEMAND OR SUPPLY PROBLEMS WILL NOT CRUSH THE US ECONOMY

MORE SELECTIVITY IN SOURCING OIL WHEN SECURITY IMPLICATIONS ARISE

RISING IMPORTANCE OF WESTERN HEMISPHERE

COMPETION WITH CHINA FOR RESOURCES MAY ESCALATE

MORE SECURITY CONSIDERATIONS CHINAS DEPENDENCY RISES TO 80% MOST OF WHICH WILL COME FROM THE MIDDLE EAST AND AFRICA

EURO DEPENDENCE ON RUSSIAN GAS DIMINISHES AS US LNG EXPORTS INCREASE

JAPANESE DEPENDENCE ON IMPORTED LNG INCREASES AS NUCLEAR DECLINESChina statistic is from the 2012 World Energy Outlook from the IEA34Chart11.7740.9544.6259990.0041.7981.0234.5880.0071.7143031.0690714.3829760.0061.5841.094.170.0051.5591.1383.960.0041.4811.2613.8120.0031.3921861.3143993.7547080.0021.2961.4013.7520.0021.1751.4733.6020.0021.05031.5583.2720.0010.9703421.6125823.0851260.1540.9631.7052.9830.1510.9851.7152.9030.1420.9751.7172.8430.1460.9085111.598622.7520250.1590.8641.4212.7070.1850.7411.4342.7270.20.7221.4062.710.2270.6851.2742.4670.5380.6461.6742.4170.630.5991.6682.3870010.820.571.432.4461.220.531.412.3984891.9965110.52171.492.5176652.2973350.4816031.5920612.5864692.513810.4587381.6285792.5650362.6340630.4741671.7866382.5460162.7122530.5032231.7227252.5259742.7480010.5212511.6952912.5177592.7597830.5036041.7294762.5221362.7801430.4870221.6876852.4802192.8125240.4704211.6362392.4684842.8007820.4354261.5955652.4462182.7420390.4042311.5561232.4146982.6932960.3763441.4894262.3720112.6666430.3500641.4586192.3584692.6266530.3249071.4132572.3458742.5240870.3022221.4418782.3325412.4383610.2817111.4382842.3155712.3867880.3223771.4289762.3007122.2853280.384491.4415212.2811652.1948960.4283481.4921042.2669682.1357260.4142751.5447942.2568732.1020340.4013851.6289482.2253062.0846790.3895491.6710882.1846652.0719870.3490251.7243012.1314592.0552180.3434191.6393952.0793372.0459990.3522251.5776482.0494612.0403630.3846781.6072372.0251282.0281230.4007221.7192411.9776082.0215160.4097671.747691.9536192.015097

AlaskaOffshoreOther onshoreTight oil

Sheet119901995200020052010201520202025203020352040Alaska1.7741.7981.7143031.5841.5591.4811.3921861.2961.1751.05030.9703420.9630.9850.9750.9085110.8640.7410.7220.6850.6460.5990.570.530.52170.4816030.4587380.4741670.5032230.5212510.5036040.4870220.4704210.4354260.4042310.3763440.3500640.3249070.3022220.2817110.3223770.384490.4283480.4142750.4013850.3895490.3490250.3434190.3522250.3846780.4007220.409767-0.160233Offshore0.9541.0231.0690711.091.1381.2611.3143991.4011.4731.5581.6125821.7051.7151.7171.598621.4211.4341.4061.2741.6741.6681.431.411.491.5920611.6285791.7866381.7227251.6952911.7294761.6876851.6362391.5955651.5561231.4894261.4586191.4132571.4418781.4382841.4289761.4415211.4921041.5447941.6289481.6710881.7243011.6393951.5776481.6072371.7192411.747690.31769Other onshore4.6259994.5884.3829764.173.963.8123.7547083.7523.6023.2723.0851262.9832.9032.8432.7520252.7072.7272.712.4672.4172.3870012.4462.3984892.5176652.5864692.5650362.5460162.5259742.5177592.5221362.4802192.4684842.4462182.4146982.3720112.3584692.3458742.3325412.3155712.3007122.2811652.2669682.2568732.2253062.1846652.1314592.0793372.0494612.0251281.9776081.953619-0.492381Tight oil0.0040.0070.0060.0050.0040.0030.0020.0020.0020.0010.1540.1510.1420.1460.1590.1850.20.2270.5380.630.821.221.9965112.2973352.513812.6340632.7122532.7480012.7597832.7801432.8125242.8007822.7420392.6932962.6666432.6266532.5240872.4383612.3867882.2853282.1948962.1357262.1020342.0846792.0719872.0552182.0459992.0403632.0281232.0215162.0150970.7950975.6666.126173sort by projection period change abovepaste data in here:Lower 48 Onshore4.634.5954.3889764.1753.9643.8153.7567083.7543.6043.2733.2391263.1343.0452.9892.9110252.8922.9272.9373.0053.0473.2073.6664.3954.8155.1002795.1990995.2582685.2739745.2775425.3022795.2927435.2692655.1882575.1079955.0386534.9851224.8699614.7709014.7023584.5860414.4760614.4026944.3589074.3099854.2566524.1866774.1253354.0898244.0532513.9991233.9687160.302716Tight Oil 3/0.0040.0070.0060.0050.0040.0030.0020.0020.0020.0010.1540.1510.1420.1460.1590.1850.20.2270.5380.630.821.221.9965112.2973352.513812.6340632.7122532.7480012.7597832.7801432.8125242.8007822.7420392.6932962.6666432.6266532.5240872.4383612.3867882.2853282.1948962.1357262.1020342.0846792.0719872.0552182.0459992.0403632.0281232.0215162.0150970.795097Carbon Dioxide Enhanced Oil Recovery0000000000000000.2210.2380.2440.2520.2653560.2814520.2446390.2372330.2317660.2254350.2244320.2289470.2377480.2550030.2736180.2942170.3173660.3435570.3657690.3972480.4273220.4569590.4865860.509870.5362540.5570930.5785460.6005520.6192360.6350070.6479250.6441840.6529290.6609020.6532190.6585730.413934Other4.6259994.5884.3829764.173.963.8123.7547083.7523.6023.2723.0851262.9832.9032.8432.7520252.4862.4892.4662.2152.1516442.1055492.2013612.1612562.2858992.3610342.3406042.3170692.2882262.2627562.2485182.1860022.1511182.1026612.0489291.9747631.9311471.8889151.8459551.8057011.7644581.7240721.6884221.6563211.606071.5496581.4835341.4351531.3965321.3642261.3243891.295046-0.906315Lower 48 Offshore0.9541.0231.0690711.091.1381.2611.3143991.4011.4731.5581.6125821.7051.7151.7171.598621.4211.4341.4061.2741.6741.6681.431.411.491.5920611.6285791.7866381.7227251.6952911.7294761.6876851.6362391.5955651.5561231.4894261.4586191.4132571.4418781.4382841.4289761.4415211.4921041.5447941.6289481.6710881.7243011.6393951.5776481.6072371.7192411.747690.31769Alaska1.7741.7981.7143031.5841.5591.4811.3921861.2961.1751.05030.9703420.9630.9850.9750.9085110.8640.7410.7220.6850.6460.5990.570.530.52170.4816030.4587380.4741670.5032230.5212510.5036040.4870220.4704210.4354260.4042310.3763440.3500640.3249070.3022220.2817110.3223770.384490.4283480.4142750.4013850.3895490.3490250.3434190.3522250.3846780.4007220.409767-0.160233Alaska1.7741.7981.7143031.5841.5591.4811.3921861.2961.1751.05030.9703420.9630.9850.9750.9085110.8640.7410.7220.6850.6460.5990.570.530.52170.4816030.4587380.4741670.5032230.5212510.5036040.4870220.4704210.4354260.4042310.3763440.3500640.3249070.3022220.2817110.3223770.384490.4283480.4142750.4013850.3895490.3490250.3434190.3522250.3846780.4007220.409767-0.160233Tight oil0.0040.0070.0060.0050.0040.0030.0020.0020.0020.0010.1540.1510.1420.1460.1590.1850.20.2270.5380.630.821.221.9965112.2973352.513812.6340632.7122532.7480012.7597832.7801432.8125242.8007822.7420392.6932962.6666432.6266532.5240872.4383612.3867882.2853282.1948962.1357262.1020342.0846792.0719872.0552182.0459992.0403632.0281232.0215162.0150970.795097Other onshore4.6259994.5884.3829764.173.963.8123.7547083.7523.6023.2723.0851262.9832.9032.8432.7520252.7072.7272.712.4672.4172.3870012.4462.3984892.5176652.5864692.5650362.5460162.5259742.5177592.5221362.4802192.468...