Is North America The Next World Capital Of Energy?

A perfect storm of sorts is leading some Western energy companies to step back from investments and operations in the Middle East. Companies see increased risk in the region because of the turmoil and violence following the Arab Spring. And, advances in technology have made it easier to produce oil in North America.

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Oil companies often face political instability in the places where they're investing. Case in point, the recent violence and turmoil in the Middle East. Working in a volatile environment has always been considered part of the cost of doing business there.

But as NPR's Uri Berliner explains, the trade-off might longer be worth it.

URI BERLINER, BYLINE: For more than a half a century, Western oil companies sought their fortunes in the Middle East. They were lured by vast proven oil reserves and low production costs. But now, instead of binding themselves to the region, some Western energy companies are looking for the exits.

AMY MYERS JAFFE: Well, I see a decreased interest in investing in the Middle East.

BERLINER: That's Amy Myers Jaffe. She leads in energy and sustainability program at the University of California, Davis. In 2011, she wrote an article for "Foreign Policy" magazine. The headline: "The America's, Not the Middle East Will Be the World Capital of Energy." Jaffe says what she saw two years ago, it's happening even more today.

JAFFE: Companies are seeing higher risk in the Middle East. They are having to withdraw their personnel because of unexpected events, and I do think you're going to see more and more companies spending more money in North America and less money in the Middle East.

BERLINER: In August, Apache, an American oil exploration company, sold assets in Egypt to the Chinese energy company Sino-Pak. Now Occidental Petroleum is said to be seeking a buyer for a stake in its Middle East operations.

JAFFE: You know, a decade ago, they felt the future of the company was going to be doing enhanced oil recovery out in the Middle East. They're now reversing that strategy in considering whether to sell out of their holdings or spin off their holdings in the Middle East.

BERLINER: If you talk to energy analysts, they cite three factors for this historic change: politics, technology and price. First, politics. Oil and gas analyst Fadel Gheit tracks global energy for Oppenheimer & Company. He says the hopes of the Arab spring have not been achieved.

FADEL GHEIT: Unfortunately, it became a lot more violent, a lot more bloody than most companies had expected. Started with Libya and moved to Egypt and Iraq, and obviously, Syria is now an international crisis.

BERLINER: Energy companies are worried about the safety of their employees in the Middle East. Regimes are unstable, deals can be broken in an instant, supplies disrupted. Jaffe says these political risks make the region less appealing.

JAFFE: The upshot of the Arab Spring is going to be is that oil production of the Middle East is going to be highly disruptable(ph).

BERLINER: Second factor in the shift - technology. Advances in horizontal drilling, hydraulic fracturing - also known as fracking - and digital mapping are transforming oil production. Companies can squeeze additional oil from existing sites and are more willing to explore an unproven, but promising locations in the U.S.

Energy analyst Fadel Gheit.

GHEIT: We have significant potential here in this country, the technology continues to improve, production growth will continue for years to come. And this is something that we could not say two years ago or three years ago.

BERLINER: Finally, there's price. When prices are low, producers want to be in the Middle East. That's where production costs are lowest, and profits can be turned even when oil prices have fallen.

But oil prices have been high for several years now. A barrel of crude costs more than $100, and at that price North America is a good bet. Jaffe says because of easy access to capital and technology, the bet can pay off quickly.

JAFFE: You can go in and within six months to a year, you can have production.

BERLINER: Western energy companies are willing to pay a premium to avoid political turmoil. And Fadel Gheit says the trend is playing out beyond North America - and not just with oil.

GHEIT: Chevron, Exxon and Shell are investing close to $50 billion for a liquefied natural gas facility in Australia. I find it very difficult to even think that they will spend a fraction of this amount in any country in the Middle East.

BERLINER: So who will spend in the Middle East? Gheit says Chinese energy companies. He says they don't have the same worries about the safety of their employees. And as extensions of the Chinese government, they will spend massively to secure resources that support China's economic expansion.

Uri Berliner , NPR News.

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