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Who Would have thought??
North America – the new Middle East? CitiGroup issued a thought provoking report on the changing dynamics within the
North American energy sector. The report titled "North America, The New Middle East" makes the point that technical
innovation that has unlocked new sources of energy, demographics and technology will be responsible for making North
America virtually energy independent in the coming decade. The U.S. has become a net petroleum product exporting country
and has edged out Russia as the world’s largest refined petroleum exporter. In the report the CitiGroup noted, "A simple
explanation would point to lower demand and a struggling economy, which requires less imported energy. But, that would only
get you half the answer. U.S. demand has fallen by some 2 million barrels per day since its peak in 2005. The more exciting part
of the answer is on the supply side as the U.S. has become the fastest growing oil and natural gas producing area of the world
and is now the most important marginal source for oil and gas globally. Add to this steadily growing Canadian production and a
comeback in Mexican production and you get to a higher growth rate than all of OPEC can sustain." The report cites five
incremental sources of liquids growth that could make North America the single largest source of new supply in the next
decade. They include: 1) oil sands production in Canada; 2) deepwater in the U.S. and Mexico; 3) oil from shale and tight sands;
4) natural gas liquids (NGLs) associated with the production of natural gas; and 5) biofuels. Putting these together, North
America as a whole could add over 11 million barrels per day of liquids going from over 15 million barrels per day in 2010 to
almost 27 million barrels per day by 2020-22. The ramifications for such growth within North America and around the world
are profound from an economic and geo-political perspective, however the most important impact will be the reindustrialization
of America based on dramatically lower cost feedstock than is available anywhere in the world, with the
possible exception of Qatar. CitiGroup noted, "The economic consequences from this supply and demand revolution are
potentially extraordinary. We estimate that the cumulative impact of new production, reduced consumption and associated
activity may increase real GDP by 2.0 to 3.3%, or $370-$624 billion respectively. $274 billion of this comes directly from the
output of new hydrocarbon production alone, while the rest is generated by multiplier effects as the surge in economic activity
drives higher wealth, spending, consumption and investment effects that ripple through the economy. This potential reindustrialization
of the U.S. economy is both profound and timely, occurring as the U.S. struggles to shake off the lingering
effects of the 2008 financial crisis." The report does note that risks to the thesis include environmentalism and political
interference, especially in Mexico.