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US to surpass Saudi Arabia as global oil production leader

November 19, 2012
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LONDON — The United States is likely to emerge as the world''s biggest oil producer by 2020, following a shale oil production surge that will allow it to surpass Saudi Arabia, the International Energy Agency (IEA) announced in its annual World Energy Outlook publication, released in London.

The IEA said that the global oil market is going through significant changes, not just in terms of energy supplies but also in terms of geopolitics. The U.S. is set to lead the way in oil and gas production over the coming years, the IEA added, contrasting with its own prediction from last year, which saw Saudi Arabia and Russia as the top contestants for the trophy.

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The United States has reduced the volume of oil imported over recent years and it now accounts for about one-fifth of the nation''s needs. Over the next 10 years imports will drop by more than half, from the current 10 million bpd to about 4 million bpd. At the same time U.S. oil exports are expected to increase further, as domestic production booms, the IEA claims.

The main factor that has contributed to the recent boost in oil production is the unexpected rapid development of hydrocarbon resources from tight rock formations like shale, which are currently being extracted through a combination of hydraulic fracturing and horizontal drilling.

The IEA prediction chimes in with the recent acknowledgement from the Organization of the Petroleum Exporting Countries (OPEC) that its exports to the United States are likely to decline due to the development in shale oil production. By 2035 OPEC''s exports to the United States are predicted to drop by nearly two-thirds, to less than 2 million bpd, the organization has estimated.

Furthermore, the IEA says that the United States will effectively need no oil imports from the Middle East and this might have an impact on military alliances. As Asia is expected to account for 90% of the Middle East oil exports, OPEC will increase its global share from 42% to 50% by 2035 and Asian countries will have the primary interest in maintaining political and economic stability in the region, explains Richard Jones, deputy executive director at the IEA.

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Nevertheless, the IEA notes that the United States is not likely to remain the world''s largest oil producer in the long run. According to Fatih Birol, the IEA''s chief economist, Saudi Arabia is likely to return to the top if no new U.S. resources are found over the next few years and global oil prices fall from their current levels.

Increasing shale oil production needs another important consideration, though. The IEA warns that shale oil production poses the risk of a significant rise in water resources use, because water plays an important role in extracting shale oil and gas. Water is used in the so-called "fracking" process that helps crack rocks open to extract the shale oil and this might bring additional costs to projects, the IEA explains.

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