Flat Demand And High Production Suggest U.S. Energy Independence In 2027

December 2012, Vol. 239 No. 12

P&GJ Staff Report

High Output From Unconventional Sources
The United States will overtake Saudi Arabia to become the world’s biggest oil producer by 2017 and will be energy independent 10 years later, according to World Energy Outlook, a new forecast by the International Energy Agency released Nov. 12.
“The recent rebound in U.S. oil and gas production, driven by upstream technologies that are unlocking light tight oil and shale gas resources, is spurring economic activity – with less expensive gas and electricity prices giving industry a competitive edge,” the agency reported.

The IEA said it saw U.S. oil production rising to 10 million bpd by 2015 and 11.1 Mbpd in 2020 before slipping to 9.2 Mbpd by 2035.

Current numbers support the trend: From 2008 to 2011, U.S. crude oil production jumped 14%, according to the U.S. Energy Information Administration. American crude output swelled by 8,000 barrels to 6.68 million bpd in the week ended Nov. 2, according to the U.S. Department of Energy, the most since Dec. 23, 1994. DOE data compiled by Bloomberg shows the U.S. met 83% of its energy needs in the first six months of 2012, on track to be the highest annual level since 1991.

Natural gas production is up by about 10% over the period 2008-2011. In the New Policies Scenario, the World Energy Outlook’s central scenario, the United States becomes a net exporter of natural gas by 2020 and is almost self-sufficient in energy, in net terms, by 2035.

North America as a whole emerges as a net oil exporter. Another report, BENTEK’s new North American Perspective section of the Crude Awakening: Shale Boom Hits Oil Market Alert, forecasts waterborne crude oil imports to the U.S. will plummet 87% or 5,782 million bpd over the next 10 years, to an average of 874 Mbpd by 2022. BENTEK expects U.S. crude oil imports from Canada to grow from 2,606 Mbpd in 2011 to 4,268 Mbpd in 2022.

Growth in Canadian crude oil imports to the U.S. will be a key driver in allowing the U.S. to wean itself almost entirely off waterborne sources of crude. BENTEK said only 5% of total U.S. crude oil supply will be sourced from overseas by 2022. Combined with increased U.S. production and export of oil and natural gas, this results in a balanced energy trade projection unforeseen before the shale revolution.

“The United States, which currently imports around 20% of its total energy needs, becomes all but self-sufficient in net terms — a dramatic reversal of the trend seen in most other energy importing countries,” the IEA stated. The forecasts by the IEA were in sharp contrast to its previous reports, which saw Saudi Arabia remaining the top producer until 2035.

Energy Mix In Flux, Efficiency Gains Flatten Developed World’s Demand
The United States will rely more on natural gas than either oil or coal by 2035 as cheap domestic supply boosts demand among industry and power generators, the IEA said. The agency predicts U.S. natural gas prices will rise to $5.5 per MBtu in 2020, from around $3.5 per MBtu this year, driven by rising domestic demand.

Fossil fuels will remain globally dominant in the energy mix according to this scenario. The IEA projected that global oil demand will grow by 7 Mbpd to 2020 and exceed 99 Mbpd in 2035, by which time oil prices reach $125/barrel in real (2012) terms. In the New Policies Scenario, global coal demand increases by 21% and is heavily focused in China and India.

Expected efficiency gains are key to to adequate supply for world demand, as well as the projection of energy independence. “This year’s World Energy Outlook shows that by 2035, we can achieve energy savings equivalent to nearly a fifth of global demand in 2010,” said IEA Executive Director Maria van der Hoeven. “In other words, energy efficiency is just as important as unconstrained energy supply, and increased action on efficiency can serve as a unifying energy policy that brings multiple benefits.”

Meanwhile, the IEA predicts renewables will become the world’s second-largest source of power generation by 2015 and close in on coal as the primary source by 2035. This expected rapid increase hinges on continued subsidies, however. In 2011, subsidies for renewable sources of energy (including for biofuels) amounted to $88 billion. Over the period to 2035 the report projects they would need to amount to $4.8 trillion, but more than half of this has already been committed to existing projects or is needed to meet 2020 targets.

If fewer steps are taken to promote renewable energy and curb carbon dioxide emissions, the IEA projects that oil is likely to reach $145 in real terms by 2035–almost level with the record highs seen in 2008.

Russia, Asia and Middle East Projections
The IEA report finds the switch in direction of international oil trade accelerating, with almost 90% of Middle Eastern oil exports being drawn to Asia by 2035. Links between regional gas markets will strengthen as liquefied natural gas trade becomes more flexible and contract terms evolve. While regional dynamics change, global energy demand will push ever higher, growing by more than one-third to 2035. China, India and the Middle East account for 60% of the growth.

IEA Chief Economist Fatih Birol said he believed the United States would overtake Russia as the biggest gas producer by a significant margin by 2015. By 2017, it would become the world’s largest oil producer, he said.

However, the projections depend on the economics and geology of production. “Light, tight oil resources are poorly known . . . If no new resources are discovered (after 2020) and plus, if the prices are not as high as today, then we may see Saudi Arabia coming back and being the first producer again,” Birol said.

Saudi Arabian oil output would be 10.9 Mbpd by 2015 and 10.6 Mbpd in 2020 but would rise to 12.3 million bpd by 2035, the IEA said. It expects Iraq will account for 45% of the growth in global oil production to 2035 and become the second-largest exporter, overtaking Russia. OPEC share of world oil production would rise to 48% from 42% today.

Russian oil output, which over the past decade has been steadily above Saudi Arabia, is predicted to stay flat at over 10 million bpd until 2020, when it will start to decline to reach just above 9 million bpd by 2035.