On Nov. 19, the Paris-based International Energy Agency, an intergovernmental organization, predicted that the United States will become the world’s biggest oil producer by 2017. Other forecasters, such as the Organization of the Petroleum Exporting Countries and the U.S. Energy Information Administration, concur.
The shale-oil boom will enable America to overtake Russia and Saudi Arabia, No. 1 and No. 2, respectively. The IEA forecasts that U.S. oil production will peak at 11.1 million barrels per day in 2020. We will then fall to third place when our production declines to 9.2 barrels per day by 2035.
The IEA also projects that:
By 2030, the United States will become a net oil exporter.
By 2035, America will be almost self-sufficient in energy. Today, the United States imports 20 percent of its energy needs.
The jump in U.S. production results from “fracking” — the process of using high-pressure water and chemicals to retrieve oil and gas from shale-rock formations.
Oil analysts, however, do not expect the U.S. to become a major oil exporter for economic and environmental reasons.
The economic reasons: To be profitable, the shale oil boom requires that oil prices remain above the $80-per-barrel mark. Flooding the global market with oil would risk driving oil prices below that bench mark.
Recovering oil with fracking requires many wells and costs almost double what conventional drilling does. Richard Child, the editor of the London-based energy magazine “Petroleum Argus” wrote that, “An average well drilled in Saudi Arabia produces 26 times more oil than one in North Dakota, the prime shale region.”
The environmental reasons: Fracking requires and pollutes so much water that it limits its use. It requires between 70 billion and 140 billion gallons of water to frack 35,000 wells a year, the industry’s current annual production rate, according to the Environmental Protection Agency. This is about the same amount of water consumed every year by Houston and Chicago.
Oil service firms such as Schlumberger Ltd. and Halliburton Corp. are pursuing technologies to reuse the “frack water” that comes out of wells that use the process. While recycled water cannot now be used for drinking or growing crops, it can be used to frack additional wells.
Billionaire investor Wilber Ross predicts that increased oil and gas production will spur 800,000 new U.S. jobs over the next few years. And he points out that hydraulic fracking has driven down energy costs for industrial consumers. Lower prices have helped manufacturers, as well as fertilizer and chemical firms. Railroads and pipelines benefit because the surge in oil output will boost industries that move crude.
Prices cannot fall significantly because the world’s growing population will require more energy. The IEA predicts that global oil demand will rise 10 percent by 2035.
On the other hand, the increased supply of gas has led to a precipitous decline in domestic oil and gas prices. Gas and oil are roughly down about 60 percent from their peak in 2008.
America has enjoyed lower prices not only because of increased supply, but also because of reduced demand.
The decline in domestic demand has several causes, including increased energy efficiency, due mainly to technological advances such as better light bulbs and insulation; changes in consumer behavior; improved fuel efficiency of cars — U.S. passenger cars are 20 percent more efficient than they were two decades ago; and lower economic growth rates.
Fracking remains controversial. Proponents of fracking emphasize the economic benefits derived from extracting vast amounts of formerly inaccessible hydrocarbons. Opponents point out that fracking poses risks to ground water and air quality.
Despite the controversy, fracking has changed our energy policy and attitudes.
Until recently, American policy focused on scarcity. The OPEC embargo of 1973-1974 helped bring about that mindset. Now we can anticipate energy adequacy.
