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As U.S. Oil Production Soars, How Will It Change The Global Energy Market?

Advances in the extraction of oil and gas from shale deposits have had a far-reaching impact on the United States' energy sector. (file photo)
Advances in the extraction of oil and gas from shale deposits have had a far-reaching impact on the United States' energy sector. (file photo)
By Charles Recknagel
For the past five years, progress in extracting gas and oil from shale deposits has been revolutionizing the energy industry in the United States.

Now, a new report by the Paris-based International Energy Agency (IEA) shows how much it could shake up the global energy market as well.

The agency predicts in its World Energy Outlook released on November 12 that the United States will become the world's biggest oil producer by 2017, overtaking current number one Russia and number two Saudi Arabia.

The IEA, an intergovernmental organization that works to ensure energy supplies for its 28 mostly Western member states, also projects that by 2030 the United States will become a net oil exporter and by 2035 will be almost self-sufficient in energy.

All these things constitute a dramatic reversal of the United States' current position in the world energy market. Today, the United States imports 20 percent of its energy needs.

According to Richard Child, the editor of the London-based energy magazine "Petroleum Argus," such a dramatic reversal in the United States' fortunes would alter the global energy market.

"As [U.S.] oil production rises and its demand growth is restrained by improving energy efficiency -- primarily through vehicle fuel efficiency improvements which already have been mandated -- what we will see is an increasing displacement of imports of oil which would [otherwise] have gone to the United States," Child says.

Scrambling For New Markets

Russia, Europe, and the Organization of the Petroleum Exporting Countries (OPEC) are among those due to feel the change.

Currently, Europe is heavily dependent upon Russian and Middle Eastern oil because another alternative nearby source of crude – West Africa – exports mostly to the United States. But when the United States stops importing West African crude, Europe will be able to buy more.

That would not only help diversify Europe's energy sources but also send Russia and OPEC scrambling to find new markets in Asia. The IEA predicts that by 2035 almost 90 percent of oil from the Middle East would go to Asia – compared to 60 percent today -- as China and India lead growth there.

In the eyes of some experts that could help solve energy-hungry Asia's growing supply problems.

"We are already in a situation now where the Middle East export surpluses are not big enough to cover the Asian market's import deficits," says John Mitchell, an energy specialist at London-based Chatham House.

Something industry analysts do not expect to see is the newly shale-oil-rich United States becoming a major oil exporter.

One reason is economic. A main driver of the shale oil boom today is that oil prices are above the $80-per-barrel mark at which shale oil becomes profitable. If U.S. oil producers were to flood the global market with oil, they would risk driving their own price below that benchmark level.

Environmental Concerns

But there is another problem. To massively expand shale-oil output would require drilling vast numbers of wells because individual wells are not very productive.

"An average well drilled in Saudi Arabia produces 26 times more oil than one in North Dakota, the prime shale region at the moment," says Child.

That means the United States could compete with other big exporters only by covering its landscape with rigs. It is likely that environmental concerns would prevent this from happening any time soon.

"The technology of extraction is developing very rapidly to produce methods that are much less disruptive, so there is a technology progress there," says Mitchell. "But nevertheless, I think there will be issues and there will be some states and localities that will be opposed to just opening the door to shale-oil development."

According to the IEA report, the United States will have only a temporary hold on the top spot of world oil producers.

It says U.S. oil production will drop from a peak of 11.1 million barrels per day (bpd) in 2020 to 9.2 million bpd by 2035. By comparison, Saudi Arabia is projected to produce 12.3 million bpd in 2035 as the world's biggest producer and Russia just above 9 million bpd.

By any measure, that means there will be more oil in the world than ever before in the coming decades. But prices will remain high because demand is projected to grow, too.

The IEA predicts that a rise of 1.8 billion in the world's population to 8.6 billion will lead to a rise in global oil demand by more than 10 percent by 2035.
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Comment Sorting
Comments
     
by: Bill Webb from: Phoenix Arizona USA
November 18, 2012 19:55
I have been working at home over the Internet for three years. I don't even own an automobile anymore. I predict a dramatic shift to this type of employment in the industries it is possible, along with a dramatic decrease in demand for oil and the resulting decrease is price. From the Industrial Revolution to the Information Revolution, war will move from the battlefield to on-line where it is so much more efficient.

by: American Troll
November 18, 2012 20:24
We will never be truly self-sufficient as a society--and, hence, our national security will remain hopelessly compromised--so long as Japan holds its critical monopoly over the production and export of cool stuff. Frack the shale of West Virginia and Wyoming all you want, but it will never produce a single smoking-hot anime girl. Put that in your pipe and smoke it, Mr. John Mitchell.

"Petroleum production." My God, what is this, 1953?

by: guest
November 18, 2012 21:25
Ridiculous. RFE RL is promoting the IEA (aka the industry)'s falsehoods to help them get investment. No mention that for this to be "true" it has to be topped off with fuels of other origin like biofuels. Not mention that this cannot become true because of other limiting factors like water (Ogallala Aquifer and the Colorado Rive - look them up because they are the real backbone of American agriculture and they are drying up).

This is clearly not an outfit to promote democracy, but part of a huge sucking straw destroying our earth and its people.

by: Jack from: Prague
November 19, 2012 06:09
Climate silence reaches RFE/RL. How can you possibly write this article as if it is all good news -- as if we aren't throwing away billions of gallons of drinkable water every day just in order to throw more CO2 into the atmosphere? We don't need more gas and oil -- they just make it harder for us to transition off the energy sources that are killing us all. Report this RFE/RL.
In Response

by: Eugenio from: Vienna
November 19, 2012 12:20
Jack, the reason for which the RFE/RL "writes this article as if it is all good news" apparently consists in that they have just received a grant from one of those companies that are active in fracking.
Just to remind you, a number of countries in Europe (France in the first place) have already made this practice illegal. I think that the govt of Poland is the only one on this continent that is keen to destroy the national environment - to become a bit more independent from the oil and gas from Russia.

by: don from: nevada
November 19, 2012 19:39
why in the world don't we make more use of our huge natural gas resource, politics or what, why don't the oil companies promote that?

by: RD
November 19, 2012 22:22
I look forward to the day where U.S. oil imports will drop so dramatically that brutal regimes such as Azerbaijan, Saudi Arabia, Iran etc. will be scrambling for someone to buy their oil. I have a message to these countries; drink your oil.

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