IEA Chief Economist Reiterates Positive US Energy Outlook

US on track to become world’s largest oil producer, but Middle East still important
December 5, 2013 Updated: December 5, 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,” said Birol. “This year’s findings confirm this trend; maybe even in 2015.” He added 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, known as fracking.

It is part of a global theme in which countries that previously imported energy will become exporters.

“The job descriptions of these energy players are being redefined,” said Birol. “Some countries which have been energy importers are turning to be energy exporters, such as the U.S., in terms of natural gas.” He 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. Most of the oil produced in the United States will also be consumed in the United States, so oil from the Middle East has to keep flowing to meet growing demand in Asia.

“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, according to Birol.

“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.”

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. For the past several decades, the United States was Canada’s largest market for energy.

Russia will also have to make changes.

“Russia will have to find a new exporter destination; it will be China, it will be Japan,” said Birol, adding that it’s due to the energy demand in Europe not growing very strongly and Russia currently exporting 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 if 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,” said Birol. “In the Middle East, the cost of production is about 5 dollars.”