In what will certainly fuel more hype about energy independence, the International Energy Agency said in its annual report, released today, that U.S. oil production could outpace Saudi Arabia by 2020 if current trends in hydraulic fracturing continue. The report cited a “dramatic reversal” seen in most other energy-importing countries as U.S. oil production continues to rise.
The U.S. Energy Department said the country met 83 percent of its energy needs for the first half of the year. The question, of course, is whether we can sustain it. As I’ve written before, hydraulic fracturing represents a huge benefit to the country, but it’s also an expensive one. Part of the reason domestic production has increased is because higher oil prices have made many shale plays profitable. What we don’t know is how the Saudis will respond if the U.S. substantially curbs its imports.
Saudi has long been the price cop in the global oil markets, and its not clear if the kingdom could continue in that role if the U.S. becomes more self-sufficient. If the response in the global market, though, is falling prices, we could find ourselves back on cheap imports rather than continuing to raise the billions in capital we’ll need every year to maintain domestic production levels.
Before we get too excited about the report, it’s worth remembering that IEA’s numbers have long been suspect. Much of the data it collects come from petro-states that submit production figures that aren’t independently verified. Two years ago, a whistleblower inside the agency claimed its numbers downplayed production declines from existing fields and overstated the chances of finding new reserves, in part because of U.S. influence.
The issue of decline rates is significant because production from much of the new U.S. drilling activity, both offshore and in the shale formations, comes with far steeper declines than conventional wells.
Certainly, the U.S. has made great strides in boosting domestic production in recent years, but we still have a long way to go before we can achieve energy independence. Even if we do, it raises another more pressing question: then what?