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The New Saudi Arabia

U.S. explosion in natural gas, oil production will transform global energy picture

by Jeff Johnson
December 3, 2012 | A version of this story appeared in Volume 90, Issue 49

Credit: Shutterstock
Advanced drilling techniques such as hydraulic fracturing, or fracking, are boosting U.S. production of oil and natural gas.
A photo of a drill rig set up for winter drilling in Wyoming.
Credit: Shutterstock
Advanced drilling techniques such as hydraulic fracturing, or fracking, are boosting U.S. production of oil and natural gas.

An extraordinary growth in U.S. oil and natural gas production will change the world, creating a “sea change in global energy flows,” says the International Energy Agency (IEA), an autonomous agency within the Organisation for Economic Cooperation & Development (OECD), in an annual report released last month.

According to the IEA’s 2012 edition of “World Energy Outlook,” the U.S. is on track to become a net exporter of natural gas by 2020. Also by 2020, the U.S. is projected to be the world’s largest oil producer, overtaking even Saudi Arabia, today’s leader. The result will be a continual decline of oil imports into the U.S., the report adds, and by 2030, the U.S. will become a net exporter of oil.

By then, the U.S. will be self-sufficient in terms of net energy use, a far cry from today, when energy imports provide about 20% of U.S. energy needs, according to IEA.

The dramatic shift from the nation’s fossil-fuel dependence of the past is due in large part to recent unconventional oil and gas production—new (and environmentally controversial) technologies to release “light tight” oil and shale natural gas resources.

“North America is at the forefront of a sweeping transformation in oil and gas production that will affect all regions of the world,” said IEA Executive Director Maria van der Hoeven when releasing the report.

The fossil-fuel transformation and IEA’s projections were lauded by the American Chemistry Council, a chemical industry trade association. ACC said the energy trends show a promising future for enhanced domestic energy security and will boost U.S. global manufacturing competitiveness.

Noting the chemical industry’s use of and dependence on natural gas for heat, power, and feedstocks, Calvin M. Dooley, ACC chief executive officer, underscored the importance of the new abundance to the future of his industry. Some 50 new chemical projects have been recently announced by the industry, Dooley said, which will use new fossil-fuel supplies to expand their production.

Dooley also used the release of the IEA report as an opportunity to warn against the imposition of environmental regulations that, he said, will determine whether natural gas from shale is a “game changer” or a “sorely missed opportunity” for economic growth and jobs. IEA also voiced concern over regulations, but from a different perspective, saying that environmental impacts of gas production, if not properly addressed, “could halt the unconventional gas revolution in its tracks.”

Along with new supplies, the IEA report says, global energy demand is likely to continue its march upward, growing by more than one-third by 2035, with China, India, and the Middle East accounting for 60% of that growth. For OECD countries, which include the U.S., energy use will increase slightly, but that increase will be coupled with a shift from oil and coal to natural gas and renewable energy.

The report stresses energy interconnections and global energy linkages and trade-offs and points to the U.S., where low-priced natural gas is causing a decline in domestic coal use. As a result, the report says, more U.S. coal may be exported to other parts of the world, where it could then displace higher-priced natural gas.

Similarly, the low cost of U.S. natural gas, which stems from the increase in domestic production, is likely to displace higher-priced natural gas from other countries when traded on the global market. At its lowest ebb in 2012, the report says, U.S. natural gas traded at about one-fifth of import prices in Europe and one-eighth of those in Japan. IEA predicts more trading and price volatility as an infrastructure for moving liquefied natural gas develops in the U.S. and in receiving countries.

Globally, the fossil-fuel bonanza has been heavily dependent on subsidies, and the report notes that fossil-fuel interest benefited from $523 billion in global subsidies in 2011, six times the subsidies that renewable energy sources and developers worldwide received. Although new fossil-fuel production is a benefit for some, it also may be a cause for concern, IEA says. The report warns that fossil fuel remains the dominant fuel in the global energy mix and that the world has failed to put the global energy system on a path to sustainability.

Along with measuring energy production, in this annual report and previous ones, IEA has developed a sort of climate and energy monitor to determine what’s needed to keep global-warming increases below 2 °C through 2035. The latest report finds that four-fifths of the global carbon dioxide emissions allowable under this cap are already “locked in” by existing power plants, buildings, and other sources. Therefore, IEA urges more global energy efficiency coupled with greater efforts to reduce coal use or to develop and commercialize carbon capture and sequestration technologies.

Global energy efficiency could also lead to a “transformative shift,” said IEA’s van der Hoeven. IEA research shows, she said, that it is possible by 2035 to achieve energy savings equivalent to nearly one-fifth of today’s global energy use through a combination of policies, regulations, publicity, technologies, and energy investments.

Indeed, the report finds that recent U.S. oil independence also profited from regulations requiring increased vehicle fuel efficiency, a trend that is likely to continue into the future as tougher mileage standards go into effect.

A focus of efficiency must include electricity generation, the report says. Some 1.3 billion people lack access to electricity, and the report projects the demand for electricity will expand by 70% between 2010 and 2035. More than 80% of that growth will be in non-OECD countries, and more than half will be from China (38%) and India (13%).

Coal is the global backbone fuel for electricity, IEA says. But coal’s global share of total generation has fallen and is projected to decline from 41% in 2010 to 33% in 2035. The decline is clear in the U.S. and European Union, but coal will remain the dominant fuel in India and China. In China, the report says the growth of coal-fired generation is expected to nearly match the growth of energy generation by nuclear, wind, and hydropower combined.

But renewables are also on the rise, the report says. Between 2010 to 2035, global generation from renewable energy sources is expected to grow fast enough to almost match coal—expanding from 20% to 31% over those 25 years. Of renewable energy sources, solar is expected to grow fastest.

The rise in renewables, however, will hinge on subsidies. In 2011, these subsidies amounted to $88 billion per year globally. But over the period from 2011 to 2035, worldwide support needs to explode to $4.8 trillion, or some $200 billion annually, IEA says.

The report also examines nuclear energy and predicts that its global share is likely to slip slightly from 13% to 12%. Ambitions for nuclear have been scaled back, the report says, as countries have reviewed policies after the accident at Fukushima Daiichi that resulted from the earthquake that hit Japan in 2011. Capacity of existing plants and a few in planning, however, are projected to rise by 58%, led by China, South Korea, India, and Russia.


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