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The United States could see a surge in oil production that could make it the world’s leading oil producer within a decade, according to a new report from the International Energy Agency. But that lead will likely be temporary, and it still won’t allow the United States to stop importing oil. Barring technological breakthroughs in oil production and major reductions in consumption, the United States will need to rely on oil from outside its borders for the foreseeable future.

This week’s IEA report predicts that a relatively new technology for extracting oil from shale rock could make the United States the world’s leading oil producer within a decade, beating the current leader, Saudi Arabia.

The idea that the U.S. could overtake Saudi Arabia, even temporarily, is a stunning development after years of seemingly inexorable declines in domestic oil production. U.S. production had fallen from 10 million barrels a day in the 1980s to 6.9 barrels per day in 2008, even as consumption increased from 15.7 million barrels per day in 1985 to 19.5 million barrels per day in 2008. The IEA estimates that production could reach 11.1 million barrels per day by 2020, almost entirely because of increases in the production of shale oil, which is extracted using the same horizontal drilling and fracking techniques that have flooded the U.S. with cheap natural gas.

As of the end of 2011, production had already increased to 8.1 million barrels per day, almost entirely because of shale oil. Production from two major shale resources in the U.S.—the Bakken formation in North Dakota and Montana and the Eagle Ford shale in Texas, now total about 900,000 barrels per day. In comparison, Saudi Arabia is expected to produce 10.6 million barrels per day in 2020.The shale oil resource, however, is limited. The IEA expects production to start gradually declining by the mid-2020s, at which time Saudi Arabia will reclaim the top spot.

Shale oil is creating a surge in U.S. oil production in part because it’s easy to find, says David Houseknecht, a scientist at the U.S. Geological Survey. The oil is spread over large areas, compared to the relatively small pockets of more conventional oil deposits in the United States. So whereas wildcatters drilling for conventional oil might come up empty two-thirds of the time or more, over 95 percent of shale oil wells strike oil.

Just how much shale oil can be produced—and how fast—depends heavily on two factors: the price of oil, and how easy it is to overcome possible local objections to oil fracking, says Richard Sears, a former executive at Royal Dutch Shell and a visiting scientist at MIT. Oil shale costs significantly more to produce than oil in Saudi Arabia and many other parts of the world, so for oil companies to go after this resource, oil prices need to stay relatively high. It’s hard to put a firm number on it, but Sears estimates that $50 to $60 a barrel would be enough, compared to the $85 per barrel price of oil now. Houseknecht puts the cost of production at closer to $70 a barrel. Although costs for producing conventional oil in the Middle East also vary, they typically don’t change more than $10 per barrel.

The IEA concludes that prices are likely to stay high enough to prompt companies to produce shale oil. Recent comments from OPEC support this idea. It recently declared that it’s happy with the current prices, indicating that it’s not likely to increase oil production to bring them down. What’s more, demand for oil in poor countries is likely to keep growing, putting pressure on oil prices to rise.

The other potential issue is whether opposition to fracking in local communities might put the brakes on shale oil development, Sears says. Concerns that fracking will contaminate drinking water have led to objections in some areas, as have concerns that shale oil requires far more drilling wells than conventional oil production. Even if the U.S. is able to quickly develop its shale oil resource, it isn’t likely to be enough to completely eliminate oil imports. The IEA expects that the U.S. will still import 3.4 million barrels per day in 2035. The U.S. consumes nearly 19 million barrels per day, leaving a gap of more than 7 million even at the expected peak in shale oil production in the mid-2020s. However, the IEA expects the gap will be reduced partly by increased use of biofuels and natural gas in transportation, as well as improved vehicle efficiency, which could lower demand for oil.

The IEA does conclude that the United States will nearly be energy self-sufficient by 2035, but that’s after offsetting oil imports with exports of coal and natural gas. To be truly energy independent, the United States would have to invest in technology for converting natural gas and coal into the liquid fuels needed for transportation, or have other technical breakthroughs, such as improved batteries or biofuels, that would quickly reduce the demand for oil.

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Tagged: Business, Energy, oil, shale oil, International Energy Agency

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