IEA Report: US to be World’s Top Oil Producer by 2020

Oil Well file photo

(Dr. Donald N. Jensen – Voice of America – Russian Service Crossfire – November 15, 2012)

For decades US Presidents have called for American energy independence but have been unable to do much about it in the face of growing domestic energy consumption, popular fondness for gas guzzling vehicles and environmental restrictions.  Those dreams, however, may finally be fulfilled.  This year’s World Energy Outlook, issued by the Paris-based International Energy Agency (IEA) on November 12, predicts the United States ­ driven by improved upstream technologies that that enable economically efficient hydraulic fracturing or “fracking” (horizontal drilling to access deep shale formations) and increased energy efficiency, will overtake Saudi Arabia and Russia as the world’s top oil producer by 2017 and become a net exporter by 2030.  The US will also surpass Russia as the world’s largest gas producer by 2015.  The IEA, which advises Western governments on energy policy, finds that an expected continuing fall in US imports means the United States will become “all but self-sufficient” in energy by 2035.

This trend is a dramatic reversal of developments in most other energy importing countries and could profoundly transform not just the world’s energy supplies but also geopolitics.  “The foundations of the global energy systems are shifting,” said the IEA chief economist.  If the United States believes its strategic interests are no longer tied to continued Middle East oil exporters, for example, it could reorient its foreign policy away from that volatile region.  Less expensive gas and electricity prices ­ predicted by the IEA to be 50 percent cheaper in the US than Europe — could spark a manufacturing renaissance in the US and reduce the trade deficit by giving its industrial exports a competitive edge.

If the report’s predictions hold true the greatest geopolitical loser is likely to be Russia, where the energy sector has been the locomotive of that country’s growth for the past decade.  Energy exports remain the centerpiece of Vladimir Putin’s plans for Russia’s modernization and maintaining its status as a great power.   Over the next twenty years changes in the market will mean declining revenues for Russian coffers even as the state has a growing need for them. Moreover, Gazprom, the state-controlled conglomerate that is the world’s largest producer and exporter of natural gas, is in crisis.  Gazprom’s exports to Europe are falling, it is embroiled in antitrust litigation with the European Union, and, say its critics at home, the firm has grown lazy.  The company has grabbed easy profits and failed to invest in the research and development necessary to keep up with changes in the energy industry.  It is also highly corrupt, with the large sums of money it rakes in the lubricant to keep the political system functioning.

Russia has long deemphasized fracking because it had other hydrocarbon supplies available that were easier to tap.  Putin also has often stated publicly stated his belief that extraction of natural gas from shale formations is environmentally dangerous.  (The European press has reported that Moscow, hoping to keep a grip on its market, is bankrolling environmental activists who are trying to stop European countries’ fracking plans). In recent months, however, the Russian government has indicated that it may take steps to encourage domestic shale oil production.

Europe, meanwhile, has been slow to develop shale gas due to environmental concerns and other legal obstacles.  EU Energy policy does not adequately take into account the global impact of the shale revolution.  Given the increasingly dysfunctional Russian gas market, on which the Continent depends, Europe’s supplies of imported gas are at risk even though over time it may be able to import gas from a greater range of sources.   If the US moves toward energy independence, argues Alan Riley, noted expert at the City University of London, then Europe cannot automatically rely on American power to protect its energy security — for example, ensuring the access of oil tankers to the Gulf and Suez — Cheap gas in the US may lead to the dumping of American coal in Europe, undermining both gas and renewables.

Like all long-term forecasts the IEA World Energy Outlook should be taken with some skepticism (Such reports regularly gain wide currency, only to end up wide of the mark ­ a generation ago, for example, Japan was widely viewed as on an inexorable path to global economic domination).  The IEA’s proejections, Time Magazine editor Bryan Walsh reminds us this week, assume that countries will be producing shale oil well into the future.  Environmental concerns raised by the practice could lead to regulations that will eventually curb production.  The IEA also takes for granted the US will continue to tighten energy efficiency standards.   The stakes for leaders in Moscow and Brussels, however, could not be higher.   They would be wise to take to heart the findings of this week’s report.