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Guest blog: Security of Supply and Shale Feedstock

What kind of impacts does the shale gas feedstock have in oil & gas industry’s security of supply? Here’s what our guest blogger Claira Lloyd, the Editor of Hydrocarbon Engineering magazine is discussing about this topic.

"When thinking over the last year, and what’s been happening within our industry, a few key topics keep springing to mind namely, security of supply and shale oil and gas. It has been quite a year for the oil and gas industry, butthese are the two topics I would like to comment on. One could say that security of supply and shale oil and gas go hand in hand when it comes to the USA. The continent has such a vast abundance of new resources that there is a natural gas glut. Yet, when it comes to processing the volumes of light, sweet crude now available, there are one or two hurdles that need to be jumped. During the 2000s the days of such crude were thought to be at an end and many refineries spent vast sums of money upgrading their units to process heavy, sour crudes. This of course causes a problem for refiners that would now be in a better position if they could process shale feedstock, as it is easily available and cheap to the domestic market. Shale feedstock also negatively impacts distillate production levels, as refineries are likely to blend this light crude with heavier crude resulting in a gap in distillate supply and demand. However, with the prospect of cheap domestic resources now alive, this situation is surely going to be rectified.

The USA hasn’t been the only region to watch, Brazil has grabbed my attention as it was earmarked earlier this year as one of the key emerging markets and a rapid growth market. Brazil has been in a strong position for several years as it fared the global financial crisis better than many and now, with the discovery of the presalt layer, it is poised to take the main stage. If proven, the country will have secured its supply of oil and gas for the future and Brazil will be home to the world’s 6th biggest reserves. This discovery will create jobs in the oil and gas industry as well as those industries and markets indirectly linked, such as manufacturing. Brazil is also on the up due to the prosperous period its motor industry has entered as well as the associated tourism which will come with the 2014 FIFA World Cup and 2016 Olympics. But, there are as always a few challenges that the country needs to overcome to reap the true benefits of what lies ahead. The country’s infrastructure leaves a lot to be desired, and there are fiscal concerns such as a complicated tax system and high interest rates. However, it is the lack of skilled personnel that is having the biggest impact on the country, and not just in the oil and gas industry. Yet, despite these downsides, the potential is still there and Brazil could indeed become an energy superpower.

Not all global economies have been so lucky when it comes to oil and gas. Mexico appears to be suffering somewhat as it is now thought that the country’s oil production peaked in the early 90s when the Cantarell discovery was producing 2.4 million bpd. Due to natural depletion, the figure has now dropped to 400 000 bpd and as the country has yet to develop the shale reserves which have been discovered, things aren’t looking too good. Developing the reserves is not going to be cheap so fueling domestic demand for the short term is going to require imports. Consumption in the country is rising faster than production and it looks as thought the US is going to be the saviour. Already, the US supplies the country with most of its refined products as Pemex doesn’t have the correct facilities to process the available heavy crude so it ships it to the US for processing. The Mexican oil black market is also a problem for the country as it costs the oil and gas industry approximately US$ 1 billion. So it appears that unlike the USA and Brazil, Mexico is struggling to maintain its world ranking and security of supply is indeed an issue that needs to be addressed sooner rather than later."


Claira Lloyd

the Editor of Hydrocarbon Engineering magazine

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