Oil Price Slump in North America; Challenges & Consequences
North America, which covers Canada, the United States and Mexico, is one of the important oil-rich regions in the world. These three countries are all produces of crude oil.
In this article, we review oil production conditions in these three countries and then review the consequences of oil price fall for them.
US
Crude oil production in the US went on upward trend in 2012 and continued into 2015. But oil production in the US slowed down and even halted in 2015 as oil prices fell sharply. According to the US Energy Information Administration (EIA), shale oil production in this country continued to fall for the seventh consecutive month in June 2016. On account of exorbitant debts and sharp fall in oil prices, the US shale oil and gas industry has flagged behind its once historic growth.
US Crude Oil Output (million barrels), 2010-2016
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US Crude Oil Output (million barrels), 2015-2016
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Canada
According to BP official data, Canada sits atop the world’s largest oil reserves, behind Saudi Arabia and Venezuela. It is now the fifth largest producer of oil in the world.
Canada’s National Energy Board (NEB) put the country’s crude oil production at 3.87 mb/d in 2015, which is estimated to soar to 6 or 7 mb/d by 2040.The bulk of Canada’s oil reserves is found in Alberta.
Canada Crude Oil Output (million barrels), 2010-2016
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Canada Crude Oil Output (million barrels), 2015-2016
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Canada exports 1.6 mb/d of oil to other markets, including neighboring US. Canada has long replaced Venezuela and Mexico as oil supplier to the US. However, enhanced shale oil production in the US has reduced its appetite for taking in crude oil from Canada.
As oil prices rebound Canada hopes it will increase its production and find new markets.
The primary market for Canada’s heavy crude oil production growth is located in US Midwest and along the Gulf of Mexico coastlines.
There are opportunities for this type of oil to make its way into new markets in Asia. By extracting more oil from tar sands, Canada will be able to meet growing demand in Asia mainly from China and India.
Furthermore, Canada crude oil production can replace the oil imported to power refineries in Quebec and western coasts of the US.
Mexico
Mexico is among the top 10 oil producers in the world. Along with Canada and Saudi Arabia, Mexico is one of major suppliers of oil to the US. Over the past one decade, Mexico has seen oil production fall due to pressure decline in its mature oil fields. Oil production in this country has declined from 3.4 mb/d in 2004 to 2.5 mb/d in 2016.
Mexico’s giant state oil company PEMEX has lost nearly 30% of its production since 2004. The main reason is insufficient investment in oil exploration and production sectors.
Mexico Crude Oil Output (million barrels), 2010-2016
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Mexico Crude Oil Output (million barrels), 2015-2016
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Mexico amended its energy law in 2014. These reforms end PEMEX’s 75-year monopoly on oil production, and facilitate joint venture investments in the country. The objective sought by the reforms was to enhance production and export through new investments by private and foreign companies in Mexico’s oil reservoirs.
But as oil prices have fallen in recent years and many oil companies have subsequently pulled out of oil field development projects Mexico cannot be much hopeful of attracting fresh investments with a view to raising its production level.
Oil Slump Impact on North America
The US, Mexico and Canada have all suffered losses due to sharp decline in crude oil price in international markets. This loss production is seen in the financial