U.S. Predicted to Become World Energy Production Leader by 2020

The United States is predicted to become the world’s leading oil producer by 2020, according to the International Energy Agency’s 2012 World Energy Outlook. The U.S. would overtake Saudi Arabia and Russia, largely due to increased production from unconventional oil resources, such as shale oil and tight oil. Additionally, the U.S. would become the world’s leading natural gas producer, overtaking Russia, by 2015.

The majority of increased global production ventures are profitable at prices at or above $70 per barrel. Currently, oil is priced around $86 per barrel, providing a clear path toward expanding production. The IEA report predicts that production will increase in all but four countries: Norway, the U.K., Mexico, and Iran. These countries are predicted to decline production only modestly, by less than 2-3%. The four countries with the highest potential for effective production capacity growth are, in order, Iraq, the U.S., Canada, and Brazil.

These expansions could lead the Western Hemisphere to energy independence. However in reality, the global nature of the oil industry makes the notion mostly irrelevant. Disruptions in supply in any area will affect prices worldwide. Additionally, Brazil or other countries may choose to export to China, or Iraq (projected to become the world’s second largest oil producer) might export to the U.S. for purely commercial reasons. With this in mind, the U.S. will still have a significant interest in the Middle East and open trade.

Contrary to many beliefs, oil is not in short supply. In 2011, the world consumed 32 billion barrels of oil (crude oil and natural gas liquids) while oil proven reserves were about 1.3 trillion barrels. The U.S. Geological Survey estimates the remaining conventional oil resources in the earth are about 7-8 trillion barrels (that can be recovered economically). Additionally, the USGS (2003) and the World Energy Council (2007) estimated that there could be more than 9 trillion barrels of unconventional oil resources beneath the surface of the Earth.

Currently, Russia produces about 10.1 million barrels per day, compared to Saudi Arabia at 9.7 million and the U.S. at 9 million. The U.S. consumes roughly 18.84 million barrels per day. The U.S. imports the balance of its oil primarily from Canada (2.9 million), followed by Saudi Arabia (1.4 million) and then Mexico (1 million). In the IEA’s report, the U.S. could become a net oil exporter by 2030 and almost energy self-sufficient by 2035.

There are some possibilities that could derail this expansion, mainly falling oil prices. First, an economic collapse in China would severely disturb the demand for oil, causing a glut and plummeting oil prices. A global recession would have similar effects. Most notably in the U.S., however, is the potential political barrier and environmental concerns.

Hydraulic fracturing and horizontal drilling have been used since 1947 and 1929 respectively. However, only recently have they become commercially viable enough to garner public attention. Although there have been over one million hydraulic fracturing operations since its inception with little environmental impact, there are some concerns. Air pollution resulting from the release of underground compounds is an issue. However, the technology currently exists to recapture these gases, and is required to be used in some states. Wastewater disposal is a larger concern, as there is no one industry standard. The various methods include:

  • Underground injection
  • Treatment facilities
  • Surface impoundments (pits and ponds)
  • Recycling wastewater

The EPA has proposed regulations to address these concerns, but they will be costly and take several years (3-4 at least) to properly implement in order to prevent disruptions in supply. The American Petroleum Institute estimates that the total cost per well of these regulations would be $62,881. Although there would be an initial hit, the currently proposed rules would not, in and of themselves, derail long term production increases.

Another large obstacle in the U.S. is the lack of adequate infrastructure to handle the increased supply.  Simply put, we need to build more pipelines. Three substantial projects are scheduled to be complete by 2015, including the TransCanada Keystone XL pipeline. Even so, these alone would not be able to handle the increased American and Canadian production, resulting in costly and inefficient transportation by trucks and other ground transportation. Canada would also have to build additional pipelines to handle the increased capacity.

All in all, the picture for American energy production looks good. The boom it would provide the economy would be a game changer, shifting the center of energy from the Middle East to the Western Hemisphere. At current rates of consumption, global oil can last us another 300-400 years, meaning that “peak oil” is nowhere in sight. Considering that 100 years ago we didn’t have airplanes, our long term energy outlook is excellent.

Additional Resources

World Energy Outlook 2012 Executive Summary: http://www.iea.org/publications/freepublications/publication/English.pdf

Harvard Kennedy School, Oil: The Next Revolution: http://belfercenter.ksg.harvard.edu/files/Oil-%20The%20Next%20Revolution.pdf

The Environmental Protection Agency, Hydraulic Fracturing: http://www.epa.gov/hydraulicfracture/

American Petroleum Institute, Hydraulic Fracturing: http://www.api.org/policy-and-issues/hf.aspx

Horizontal Drilling: http://www.horizontaldrilling.org/

Oil Prices: http://www.oil-price.net/

Nation Master, Oil Production: http://www.nationmaster.com/red/graph/ene_oil_pro-energy-oil-production&b_printable=1

EIA Petroleum and Other Liquids, U.S. Imports by Country: http://www.eia.gov/dnav/pet/pet_move_impcus_a2_nus_ep00_im0_mbblpd_m.htm

Reuters, U.S. to Become Biggest Oil Producer by 2017: http://www.reuters.com/article/2012/11/12/iea-oil-report-idUSL5E8MC7GA20121112

The Energy Collective, Why IEA Oil Forecast is Unrealistically High: http://theenergycollective.com/gail-tverberg/143286/iea-oil-forecast-unrealistically-high-misses-diminishing-returns

 

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