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Economic Forecasts

North America's Next Energy Hot Spots

An energy revolution is under way in Canada, Mexico and the U.S. And it’s not just energy companies that are benefiting.

With surging oil and natural gas output already making headlines from North Dakota to Pennsylvania, there’s reason to believe that the domestic energy boom is really just beginning. The combination of hydraulic fracturing, or fracking, and horizontal drilling now lets energy firms reach deposits locked in shale and other rock layers &emdash; resources once thought too difficult to exploit. As a result, domestic oil output is up 50% since 2008, and the U.S. has become the world’s top natural gas producer. So far, mammoth fields such as the Bakken Formation of North Dakota and Eagle Ford in Texas have garnered most of the oil and gas industry’s attention.

A slew of future drilling hot spots are emerging, suggesting that the domestic energy boom is about to shift into higher gear. Start with the arc of promising finds dotting the South Central U.S., from the Gulf Coast to West Texas to Kansas. The Louisiana Department of Natural Resources reports mounting investment by energy firms in several of the state’s oil-bearing shale plays, including the Tuscaloosa Marine Shale, the Brown Dense Formation in northern Louisiana and ultradeep wells being drilled near the coast.

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Farther west, Devon Energy is “very excited” about rising oil production from its wells in the Oklahoma portion of the Woodford Shale, according to company spokesman Chip Minty. Meanwhile, Apache Corp. is aggressively increasing drilling in the Cline Shale of West Texas, hoping it can join the ranks of prolific oil plays in the Lone Star State. Apache has leased 520,000 acres in the Cline, and says both the cost and time required to drill a new well there have fallen substantially over the past two years.

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Don’t overlook the shale potential of America’s northern and southern neighbors. In Canada, natural gas output is rapidly expanding, thanks to development of shale fields in British Columbia. Even more is on the way from relatively untapped deposits, such as the Liard Basin in the northern part of the province.

Meanwhile, Mexico is mulling a reversal of its decades-old ban on private companies developing its oil and gas reserves. Older fields are drying up, and Pemex &emdash; the state-run energy monopoly &emdash; lacks the resources to exploit Mexico’s huge but untapped shale fields. Diana Negroponte, a nonresident senior fellow at the Brookings Institution and an expert on Mexican politics, figures a change could come as early as the end of 2014. “The politics are complicated,” she says, because of Mexican citizens’ apprehension about letting in foreign energy companies, but in the long run the country will have little choice but to seek out the expertise of large, international drillers with experience in fracking.

The next wave of shale development spells a huge surge in oil and gas produced either within the U.S. or close to home by stable trading partners, lessening the American economy’s dependence on the Middle East and reducing energy costs.

The benefits are already spilling over into energy-intensive industries. The petrochemical sector, in particular, is enjoying a rebirth, thanks to low-cost natural gas and abundant raw materials such as ethane, a building block for plastics, paints and many other everyday products. Petrochemical firms are planning $100 billion in new plants and infrastructure to take advantage of the expanding shale energy boom in coming years, according to Owen Kean, senior director of economic policy at the American Chemistry Council. Low costs and ample supply mean that “the U.S. is the place to do business” for the global chemical industry, and will be for decades, he says.

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