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New energy in America

The United States is set to overtake Saudi Arabia in oil production. The fallout will be global.

india Updated: Nov 14, 2012 21:24 IST

The International Energy Agency’s (IEA’s) latest energy outlook is noteworthy for its prediction that the US will overtake Saudi Arabia as the world’s largest oil producer by 2020. By its calculation, the US will produce some 40% of the world’s increase in oil production over the next eight years. That will be more than the increased production of all the Organisation of Petroleum Exporting Countries members combined. This is the seventh projection of future US oil production in recent times. Each one has increased the amount of oil the US will produce thanks to its shale oil breakthrough. If anything, the IEA estimate is relatively moderate because it assumes US production will peak at just over 11 million barrels per day. Other estimates put the peak at 14 million barrels.

The surge in shale oil production should be seen in tandem with two other developments. One, projected by both the IEA and earlier studies, is that US demand is heading south thanks to gasification and tightening mileage standards. The US may never be self-sufficient in oil, it would not have to look beyond North America to achieve that goal in coming decades. Two, the US is not only independent in terms of natural gas, it is now becoming a major exporter of the stuff.

Because so much of US foreign policy is geared to ensuring energy supplies, this sudden change in American energy fortunes has global repercussions. One is that it puts into question the entire US commitment to Persian Gulf security. Will the US spend so much time and effort to safeguard the supplies of China and India? Two, it raises questions about the economic viability of renewable energy, especially nuclear and wind. Three, the withdrawal of US demand should help moderate oil prices in coming years. The US is driving down natural gas prices. Finally, it may well be that these basic commodities will, literally, provide the burning spark that will bring the US out of its present doldrums. What is certain is that the world will be a different place in 10 years because of the American shale oil story and India and others should adjust their policies accordingly.