IEA Chief Economist Reiterates Positive U.S. Energy Outlook

U.S. on track to become world’s largest oil producer, but Middle East still important
December 4, 2013 Updated: December 4, 2013    

NEW YORK—Fatih Birol, chief economist of the International Energy Agency (IEA) reiterated his positive outlook on U.S. energy production in a speech at the Council on Foreign Relations in New York Wednesday.

 “The United States will be the largest oil producer in the world in 2017, larger than Saudi Arabia. This year’s findings confirm this trend; maybe even in 2015. This is good news,” he said, adding that most of the oil will be shale-based. Shale oil and gas can only be recovered by using advanced technology such as hydraulic fracturing or “fracking.”

 This is part of a global theme where countries that previously imported energy will become exporters.

 “The job descriptions of these energy players are being redefined. Some countries, which have been energy importers, are turning to be energy exporters, such as the U.S. in terms of natural gas.” He also cited Brazil as another notable example.

 However, cheap oil from the Middle East will still play a major role in the future of world energy, as most of the new oil produced in the United States will also be consumed there.

“Almost all of this oil will be consumed in the United States. If we tell the Middle East producers we don’t need the growth of your oil fields, there might be no investment,” he said.

 In addition, the Middle East will also sharply increase its energy consumption. The IEA estimates the countries in the Middle East will consume as much energy in 20 years as China is today.

 

New Trade Patterns

With countries shifting from importers to exporters, traditional energy trade routes will have to be redefined. “It is very important for countries to read the game and position themselves … There are some major countries who were not able to understand what is going on and they lost a lot in terms of exports,” said Birol

 For example, Canada will likely shift its exports of energy from the United States to Asia as the United States starts producing more energy over the next 20 years. Over the last decades, the United States was Canada’s largest market for energy.

 “Russia will have to find a new exporter destination; it will be China, it will be Japan,” Birol said, because the energy demand in Europe was not growing very strongly and Russia currently exports most of its energy to Europe.  

 

Fracking

Birol is also optimistic to manage and avoid the “legitimate” risks concerning fracking. “We can minimize if not nullify these problems is the right policies are put into action,” he said.

 He added that the United States will use its history of oil and gas exploration when developing these projects. “In the United States you have an oil and gas industry that has a history of 100 years … Capital, technology and data are already in place.”

 Nonetheless, actually producing this gas and oil will not come cheaply, another reason why cheap Middle Eastern oil is still needed for the future: “In order to produce [shale] oil, you need an oil price at $80. In the Middle East, the cost of production is about 5 dollars.”