The U.S. Is on the Threshold of the Biggest Oil and Gas Boom Ever
The U.S. is set to enjoy the biggest increase in oil and gas production the world has ever seen over the next few years, according to a new report out Tuesday.
The report from the International Energy Agency (IEA), a Paris-based think tank, is a thumping endorsement for the shale sector’s resilience in the face of a two-year attempt by Saudi Arabia and others to squeeze it. That’s already visible in U.S. government forecasts, which say U.S. crude oil production will rise from an average of 9.2 million barrels a day this year to 9.9 million barrels a day in 2018, a new all-time high beating a record set in 1970.
The IEA said the U.S. will account for 80% of the increase in global oil supply between now and 2025, as shale producers find ever more ways to pump oil profitably even at lower prices. By the late 2020s, the U.S. will become a net exporter of oil for the first time since the 1950s.
In natural gas the trend is the same, only faster. By the mid 2020s, the IEA expects the U.S. to become the world’s biggest exporter of liquefied natural gas, demand for which is set to rise strongly as China, India, and Southeast Asia all turn away from coal to cleaner energy sources.
Also helping the equation is the projection that oil demand in the U.S. is set to fall by over 4 million barrels a day by 2040, due to the spread of electric vehicles and improved fuel efficiency in those vehicles that still use combustion engines.
“The U.S. will become the undisputed global oil and gas leader for decades to come,” IEA executive director Fatih Birol said at a press conference in London. He said that the increase in absolute terms will dwarf even the ramp-ups delivered by Saudi Arabia and Russia in the post-war period. Between 2005 and 2030, total U.S. oil output will double from less than 15 million barrels of oil equivalent a day to over 31 million.
The transformation is set to give U.S. diplomacy considerably more clout, lessening the dependence on Middle Eastern oil and making the U.S. the answer to some developing nations’ most pressing needs.
“The U.S. Secretary of State will be sitting more comfortably in his seat than the the Secretary of State of [today’s] energy exporting countries,” Birol said.
The IEA’s forecasts overlap largely with the Trump administration’s pursuit of what it calls “energy dominance”—a strategy that has been visible in its rollback of various Obama-era policies this year (above all in the U.S.’s withdrawal from the Paris Climate Accord), and in a big expansion of federal acreage offered for oil and gas prospecting.
But even such “dominance” won’t completely free the U.S. of dependence on potentially unreliable sources of foreign energy. U.S. refineries are mostly engineered to process foreign crude blends which are heavier and have a higher sulfur content, whereas most of the “tight oil” being exploited by shale companies and oil extracted from the Gulf of Mexico and Alaska is lighter and “sweeter.” That means that the U.S. will continue to import from places such as Venezuela and Saudi Arabia, while U.S. crude will be exported in ever-greater volumes, the IEA said.
Nor does it mean that the Middle East will lose its key role in the world’s energy markets.
“Although the U.S. will become the biggest producer, the Middle East will still be the most important exporting region, especially for Asia,” Birol said, pointing out that China, India, and Southeast Asia will still demand big incremental amounts of oil and gas in future, even allowing for the boom in renewables in those countries.
“The notion of independence in energy is important, but in practice, no country is an island in a deeply interconnected energy world,” the IEA said.
Emerging U.S. dominance was one of four mega-trends in world energy markets highlighted by the IEA in its review. The others were the explosive growth of renewable energy sources, especially solar photo-voltaic energy; China’s increasing prioritization of cleaner energy; and the huge long-term rise in global electricity demand, reflecting higher living standards in the emerging world—notably in the shape of demand for air conditioning. The IEA said demand for cooling will add more to global electricity demand than the spread of electric vehicles.