Retired train conductor ‘Colonel’ Edwin Drake ignored the crowds who laughed and pointed at his steam engine-powered drill boring through the gravel in Titusville, Pennsylvania in the summer of 1859.
The Colonel claimed moral victory a few days later. Billy Smith, the rig’s early bird, saw crude oil rising on the morning of 27 August. Drake collected the first oil in a bathtub, and the Pennsylvanian oil rush swelled Titusville’s population from 250 to 10,000 almost overnight. Drake, who never patented his drilling invention, died a poor man.
However, Drake’s folly turned the United States into the world’s leading petroleum producer by the mid-1900s. The centre of gravity then shifted east, with easily accessed Saudi Arabian reserves. Asia remains the engine room of demand, but the Colonel’s pioneer spirit is needed again as exploration fortune returns to the Americas.
Charles Shapiro, the president of the Institute of the Americas, suggested that the western hemisphere was “the new global energy capital” at La Jolla Energy Conference earlier this month. Statistics support the theory of returning vitality, but the west will be harder won this time round, with resources trapped in shale formations in the north and layers of pre-salt rock to the south. The warmth of reception will also vary either side of the equator.
The northwestern hemisphere’s shale gas glut is overwhelmingly a good thing for the region, even if it has gummed up the market while it reacquaints itself with oversupply. Politics and markets are less complicated – or more grateful – further south, where Brazil is experiencing exploration fortune for the first time.
Andre Garcez Ghirardi, an adviser to Petrobras’ chief executive, reminded La Jolla delegates how much new oil comes from the western hemisphere, specifically the Atlantic Basin. Around 34 billion barrels of oil equivalent were discovered globally between 2005 and 2010. Over half were deepwater discoveries, 61% of which were in Brazil. “These new Atlantic Basin reserves are enough to alter the balance of commercial relations,” said Ghirardi.
Brazil, among all non-OPEC members, is expected to record the largest increase in production by 2030; a 120% increase based on 2008 levels of production. Russia is second, with an increase of 7%, added Ghirardi.
Brazil’s problem is not oversupply, but wealth distribution. The country will have a surplus of 1.2 million barrels per day of production by 2020, putting it among the world’s largest oil exporters. “We have a challenge to translate new oil revenues into a tool for social transformation. You must avoid creating a privileged niche around the resources; they need to trickle down,” said Ghirardi.
It’s worth being prepared, as Colonel Drake will testify.