Will there be less volatility in crude oil prices or is India better placed as far as supplies are concerned, if the predictions of the US oil boom come true?
The answer to both questions is ‘most unlikely’. Here in lie the reasons — producing oil both in the US and Asia is not as easy and cheap, which will help support prices; and both will still need a lot of oil for their own consumption.
But, on the positive side, oil from West Asia, which was going to the US, will now be available for other consumers such as India, because the US will need to import less and less over the next 25 years.
The recent International Energy Agency (IEA) flagship report ‘World Energy Outlook 2012’ said that the US would become the world's largest oil producer by 2017, surpassing Saudi Arabia. But, this will not result in the US becoming a large exporter, as the majority of the production in the US will be absorbed domestically, IEA’s Chief Economist Fatih Birol told
Surge in production
According to World Energy Outlook 2012 report, by around 2020, the US is projected to become the largest oil producer, overtaking Saudi Arabia, until mid-2020s when the latter is expected to regain its position.
In comparison to IEA’s previous report, wherein it said that Saudi Arabia will remain the largest producer until 2035, Birol said that the US, after experiencing years of decline in production, is now seeing a new mid-term surge in production.
“The increase in output (US) is driven by upstream technologies that are unlocking new light tight oil and shale gas resources,” he said.
Birol said that IEA assessment shows that by 2015 the US would overtake Russia as the biggest natural gas producer and by 2017 become the world’s largest oil producer. Therefore, a net importer till now (buying almost 20 per cent of its total requirement), will soon become nearly self-sufficient in both oil and natural gas. Also, US energy security is getting a boost from the recent policy measures implemented on energy efficiency – new vehicle fuel economy standard adopted by the Obama administration.
US vs Saudi Arabia
According to IEA, US oil production is expected to go up to 10 million barrels a day by 2015, hit 11.1 million barrels a day by 2020, before slipping to 9.2 million barrels a day by 2035. While Saudi Arabia’s oil output would be 10.9 million barrels a day by 2015, remain at 10.6 million barrels a day till 2020, but the West Asian country would regain its position by 2035 with production expected to hit 12.3 million barrels a day.
On whether this US boom will be temporary, as all it requires is another big oil find somewhere else – could be in Africa – and the scene could shift, Birol said, “A big new discovery may happen, but it will not change the assessment as demand is growing globally. Besides, the US boom will be mostly absorbed internally.” For consumers such as China and India, West Asia will become an even more important exporter. With the US demand coming down in near future (because of increased output and reductions in demand), 90 per cent of the oil from the West Asia in the future, will come to countries such as India and China. Iraq will be one to watch out for, said Birol. China, India, and the West Asia will account for 60 per cent of a 30 per cent increase in global energy demand between now and 2035, IEA projects.
Pricing
On whether more oil in the market will bring down the prices, Birol said it was most unlikely. To produce oil in the US will cost about $75 to $80 a barrel, as the technology used for extraction is expensive. To get decent return on investments, prices will need to be sustained. Though no one wants to speculate on oil prices, a general feeling is they will remain on the high side, since the era of cheap oil is over as IEA has been saying since its World Energy Outlook published in 2008, he said.
richa.mishra@thehindu.co.in