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US to become world’s largest oil producer by 2020, report says

Published: Tuesday, Nov. 13, 2012 9:42 a.m. CDT

(MCT) — Step back, Saudi Arabia and Russia.

The U.S. will become the world’s top producer of oil by 2020, a net exporter of oil around 2030 and nearly self-sufficient in energy by 2035, according to a new report from the International Energy Agency.

It’s a bold set of predictions for a nation that currently imports some 20 percent of its energy needs.

Recently, however, an “energy renaissance” has begun in the U.S., marked by a boost in oil, shale gas and bioenergy production made possible by new technologies such as hydraulic fracturing, or fracking, and horizontal drilling, said the report by the Paris agency, which acts as an energy watchdog for industrialized nations.

“North America is at the forefront of a sweeping transformation in oil and gas production that will affect all regions of the world,” IEA Executive Director Maria van der Hoeven said. The organization Van der Hoeven heads was formed after the oil crisis of the early 1970s and serves as an energy research arm and advisor to its 28 member nations.

U.S. oil production peaked in 1970 at slightly more than 9.63 million barrels a day. Except for a modest recovery to fewer than 9 million barrels a day in 1985, U.S. crude production had been on a precipitous decline until 2008, when it bottomed out at 5 million barrels a day, seeming to validate the “peak oil” theory that output would continue falling. That was also the year that oil reached a record price of $147.27 a barrel.

But those oil prices spurred important technological developments that enabled those looking for oil to essentially see through the bottom of rock as though it were transparent, said Philip K. Verleger Jr., a visiting fellow at the Peterson Institute for International Economics.

High prices also spurred important advances in how to extract the oil that had been found. Spurred by drilling booms in North Dakota, Texas, Oklahoma and a few other locations, production has been climbing.

“It’s been a huge change,” said Verleger, who noted that many smaller companies with relatively few employees, and not the major oil firms, have been the driving force behind America’s oil spring.

“The major oil companies abandoned the U.S. and went looking for oil overseas,” Verleger said, “but they left behind a lot of smart engineers who found the oil and natural gas, and they figured out how to extract it at relatively low costs.”

By 2015, U.S. oil production is expected to rise to 10 million barrels per day and increase to 11.1 million barrels per day by 2020, overtaking second-place Russia and front-runner Saudi Arabia, according to the IEA’s World Energy Outlook. The U.S. will export more oil than it brings into the country in 2030, the report said.

“Just a few years ago, people were still talking about peak oil. Now we’re talking about the U.S. becoming the new Saudi Arabia,” said Phil Flynn, an analyst with the Price Futures Group. “They said we couldn’t drill our way out of this mess, but we are drilling our way out of this mess.”

Around 2030, however, Saudi Arabia is expected to be producing some 11.4 million barrels of oil per day, outpacing the 10.2 million from the U.S., the IEA report said. In 2035, U.S. production will slip to 9.2 million barrels per day, far behind the Middle Eastern nation’s 12.3 million daily barrels. And by 2035 Iraq will have exceeded Russia to become the world’s second-largest oil exporter.

At that point, inflation-adjusted oil prices will reach $125 a barrel. By then, however, the U.S. won’t be relying much on foreign energy, according to the IEA report.

Globally, the energy economy will undergo a “sea change,” the report said, with nearly 90 percent of Middle Eastern oil exports directed toward Asia by 2035.

“No country is an energy ‘island,’ and the interactions between different fuels, markets and prices are intensifying,” the report said.

Some energy experts said the U.S. oil production boom carried environmental consequences. Energy-related carbon dioxide emissions will creep up, according to the IEA report, causing a long-term average temperature increase of about 6.5 degrees Fahrenheit.

They also worried that the new oil data might ultimately have the same effect of the Prudhoe Bay oil gains in Alaska in the 1970s — fostering more complacency about developing alternative forms of energy.

“New supplies alone cannot solve our energy problems,” said Amy Myers Jaffe, executive director of energy and sustainability at the University of California-Davis. “It has to be combined with greater efficiency and the continued development in alternative fuels.”

Such diversification was important, Jaffe said, because the U.S. production increases, like Alaskan oil, would eventually decline.

“This time, we don’t want to be sitting around the TV during the next Middle East oil crisis, wondering how we’re going to have the gasoline we need to get to work,” Jaffe said.

The IEA’s Van der Hoeven noted that “the potential also exists for a similarly transformative shift in global energy efficiency.” Fuel efficiency, for instance, has improved in the transportation sector. The clean energy industry has seen an influx of solar and wind efforts.

Fossil fuels, which enjoyed a 30 percent jump in subsidies last year to $523 billion worldwide, will continue to surpass renewable energy sources, according to the IEA. But so-called green power will become the world’s second-largest form of electricity generation within three years and will threaten coal’s supremacy by 2035.

That progression, however, “hinges critically on continued subsidies” for wind, solar and biofuel technologies, which last year amounted to about $88 billion and needs to reach $4.8 trillion through 2035 to approach coal’s dominance, the IEA report said.

Even then, “the world is still failing to put the global energy system onto a more sustainable path,” according to the report.

Global energy demand will boom by 2035, rising to 99.7 million barrels a day from 87.4 million last year, the report said. China’s demand will rise 60 percent over the period; India’s will more than double. Demand in developed countries will increase just 3 percent, with the desire for oil and coal losing share in the overall energy mix.

Energy production, the report said, will continue to drain the world’s water resources — it already accounts for 15 percent of total water use.

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