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Wednesday, Nov. 28, 2012

EDITORIAL

New global energy picture

Anew report hails a crucial shift in the global economy. If current trends continue, the United States will surpass Saudi Arabia as the world's largest oil producer by 2020. This development will not only transform the world's energy picture, but geopolitics as well.

A new energy landscape has powerful implications for global political and economic power.

The International Energy Agency (IEA), the top advisory body for the developed economies, notes in its authoritative annual report, "World Energy Outlook," that changing U.S. production and consumption patterns will redraw the global energy map. A surge in U.S. production means that "by around 2020, the United States is projected to become the largest global oil producer."

Credit the rapid development of hydraulic fracturing, usually referred to as "fracking," and horizontal drilling, which permit the exploitation of previously unavailable hydrocarbon reserves such as oil shale and shale gas.

As a result of these two technologies, U.S. oil production is expected to peak in 2020 at 11.1 million barrels a day, a marked increase from the 8.1 million barrels a day produced last year.

At the same time, the U.S. should be rapidly cutting its oil consumption. The Department of Energy reports that the U.S. met 83 percent of its energy needs in the first six months of 2012. Imports of crude oil have already fallen 11 percent this year, and new fuel-efficiency measures in transportation imposed by the Obama administration will further reduce U.S. imports from 10 million barrels a day to just 4 million barrels a day.

The net result is that North America is forecast to become a net oil exporter around the year 2030.

This is not a foregone conclusion. The new production techniques require a sufficiently high demand — and subsequent price — for oil that makes exploitation profitable. If demand falls off too much, then prices will ease and the economic rationale for such methods will dissipate. In that scenario, the IEA forecasts that Saudi Arabia would retain the number one slot.

The IEA is not alone in its outlook. The Organization of the Petroleum Exporting Countries (OPEC) also concedes that new production techniques could sharply reduce U.S. imports. It forecasts that in 2035, the U.S. will import less than 2 million barrels a day, a drop of nearly 75 percent from its current import bill.

Some German industries are already concerned that the U.S. energy supplies will give American companies a boost in international competition.

Apart from transforming U.S. finances, the question is how this shift will influence global politics. For while the U.S. may no longer rely on the Middle East for its oil supplies, the rest of the world will pick up the slack.

OPEC reckons that its share of global production will continue to rise, going from 42 percent today to 50 percent in 2035. Most of the oil — 90 percent by some estimates — will go to Asia to feed the world's most dynamic economies.

But if the U.S. no longer needs those oil imports, then many wonder if Washington will continue to remain as deeply engaged in the Middle East's security affairs.

There are voices in the U.S. that encourage the U.S. to let Asian and European nations foot the expensive bill to ensure safe shipping. And if Washington pulls back, are Asian nations prepared to take the place of the U.S. in securing shipping lanes?

Similarly, decreased dependence on foreign oil means that Washington has more latitude to push for sanctions and other measures against certain governments in the Middle East, such as Iran. This only goes so far since the U.S. has to have the support of allied governments to make sanctions work.

There is yet another implication for countries like Japan and South Korea. They could seek closer ties with the U.S. to obtain access to that new production.

In many ways, such a move makes sense. Apart from securing new supplies of energy, it would thicken ties across the Pacific and ensure that the U.S. remains engaged in regional security.

There is a downside risk to new production techniques. Fracking uses large quantities of water and the IEA warns that this "will increasingly impose additional costs" and could "threaten the viability of projects."

A similar concern surrounds the growing use of nuclear energy, which also demands much water for its cooling systems. Planners and consumers need to be continually aware of subsidiary resource demands as we think about responsible energy futures.

The IEA report identifies other important developments. For example, Iraq is anticipated to become the world's second-largest oil producer with its production anticipated to reach 6 million barrels a day by 2020.

By 2035, Iraq's output is expected to top 8 million, overtaking Russia to become the world's second-largest exporter. It is not clear what political condition Iraq will be in 20 years from now, or Russia for that matter, so there are many variables to consider other than mere reserves.

Plainly, however, the global energy landscape is shifting and many of our basic assumptions about how the world will work need to be challenged more regularly.



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