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IEA: US Energy Production to Beat Saudi by 2017

The American energy miracle continues to make waves as more and more people realize just how big it is. The FT reports:

The US will overtake Saudi Arabia and Russia to become the world’s largest global oil producer by 2017, according to the International Energy Agency, in one of the clearest signs yet of how the shale revolution is redrawing the global energy landscape.

This marks the first time the IEA, the developed world’s most respected energy forecaster, has made such a prediction. It underscores how the drilling boom that has unlocked North America’s vast reserves of hard-to-get-at oil and gas is changing the world’s oil balance.

The report says that the United States will be essentially energy independent in 2030:

In its yearly world energy outlook, published on Monday, the IEA said that by 2030 “the US, which currently imports around 20 per cent of its total energy needs, becomes all but self-sufficient in net terms – a dramatic reversal of the trend seen in most other energy-importing countries.”. . .

[O]il imports into the US . . . will plunge from 10m barrels a day to 4m b/d in ten years’ time. The agency [IEA] says that North America will become a net oil exporter by about 2035.

This is a forecast, and there are still some concerns. Some analysts think the IEA’s prediction model assumes a continuing boom in shale oil and gas production that may be unsustainable. As the NYT reported on October 20,

The drillers punched so many holes and extracted so much gas through hydraulic fracturing that they have driven the price of natural gas to near-record lows. And because of the intricate financial deals and leasing arrangements that many of them struck during the boom, they were unable to pull their foot off the accelerator fast enough to avoid a crash in the price of natural gas, which is down more than 60 percent since the summer of 2008.

Meanwhile, the Economist Intelligence Unit recently reported that energy independence doesn’t mean that oil will be cheap:

Oil is a global good, easily transported (unlike gas). It is traded in a fungible market where prices are set internationally. Even if the US was awash with millions more barrels of oil, the price would not be determined independently of global prices. Arguably, if the US no longer needed to import oil, then the international price could fall. Yet this is by no means certain. Although the US is currently the world’s largest consumer, the appetite for oil in the developing world is likely to be more than large enough to fill any gap left by the loss of US demand. If, on the other hand, domestic prices dipped dramatically, US producers would seek more attractive markets for their goods abroad (it is illegal to sell US domestic crude overseas, but refined products can be freely traded, effectively making the ban porous). Exporting more petroleum products would cut effective domestic supplies, forcing up prices…

It’s true that oil and gas are tied into a complex global market; as the IEA report says, no country is an “energy island.” We’re never going back to the time of a dollar a gallon gasoline, and we’ll still be importing oil in the future. But if something were to happen to the global energy supply network, our abundant domestic sources of oil and gas would cushion the blow.

The losers, perhaps, will be the green movement. The brown revolution will create high-paying jobs for Americans and reduce our reliance on faraway sources of oil from unreliable partners, like Venezuela and Nigeria and as more states benefit from the energy boom, and more investment goes to industries that depend on reliable domestic sources, energy friendly policies will have more political friends in the American political system.

Another catch: higher domestic production is going to create substantial tax revenues for local, state and federal levels of government. Politicians are going to have a vested interest in keeping that money coming in, just as the interest groups who benefit from government spending won’t want environmentalists messing with their revenue source.

The nation as a whole may have voted a bit like California in the last election, but its political economy seems to be tilting in the direction of Texas.

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