They're calling it a "supply shock" in the world's energy markets. A recent report by the International Energy Agency says oil production in North America will grow so much in the next five years that it will turn the United States into a net oil exporter, transforming the global oil market in the process.
Pumpjack located south of Midland, Texas - photo by Eric Kounce TexasRaiser
For an insight into what this means, RFE/RL correspondent Heather Maher turned to Daniel Yergin, vice chairman of IHS, a global forecasting company.
Yergin's book, “The Prize: The Epic Quest for Oil, Money and Power” won the Pulitzer Prize and his latest book, “The Quest: Energy, Security, and the Remaking of the Modern World,” is about the search for sustainable energy resources.
RFE/RL: What did you think when you heard about the coming oil supply shock?
Daniel Yergin: I think this comes as no surprise. U.S. oil production is up 43 percent since 2008. The increase in U.S. oil production - just the increase - is equal to Nigeria’s entire oil production. So the oil supply situation is being transformed by this revolution in unconventional oil and gas that’s now unfolding in North America.
RFE/RL: Your latest book is about the quest for clean, sustainable energy sources, which oil is not. Do you see a positive to this oil glut?
Yergin: This means that the world, the global market, is going to be better supplied with oil. It means that there’s a rebalancing of world oil production that is now occurring, and it points to greater stability in the oil market and not that fear of shortage and peak oil that was causing so much difficulties for the global economy half a decade ago.
RFE/RL: Couldn’t one argue that that fear of running out of oil has been driving the push for clean and renewable energy sources, and this news puts that momentum in jeopardy?
Yergin: No, I don’t think so. I think that the "peak oil" and the fear of running out reinforced the drive for renewable energies and [helped] speed up an energy transition, but in some ways, expectations for that transition have been exaggerated beyond what it can actually deliver. It will take longer for that to happen.
RFE/RL: Is the North American oil surplus a sign of some sort of paradigm shift in the energy industry?
Yergin: It is a recognition, as in every previous period when the world was going to run out of oil - there've been at least five of them - [that] new technologies, new areas, open up, and change the balance. But at the same time that this is happening, we’re also becoming much more energy efficient. Our automobiles in the United States will get up to 54 miles per gallon within a decade or so - that’s a very big change.
So I think we’re seeing change both on the demand side -- how we use energy -- and on the supply side. Although on the supply side, so far this is basically a North American development, but it is - this, along with shale gas -- the biggest innovation in energy so far in this century, keeping in mind that wind and solar are innovations from the last century.
RFE/RL: How will the fact that the United States is going from an oil importer to a net oil exporter change its foreign policy calculations? Will it alleviate some fears over instability in the Persian Gulf because of Iran?
Yergin: Ever since the 1970s, obviously the Persian Gulf and the stability of oil supplies from that region has been a primary consideration really, for the global economy. It’s not that the U.S. gets much oil as it is, today, from the Persian Gulf: only about 8 percent of U.S. supply in the last several years has actually come from the Persian Gulf. But [the concern is] rather [because of] the role of those supplies in the overall stability of the global economy.
So I think we will see -- with what’s happening with tight oil, as it’s called in the United States, the surge of production, what’s happening with the growth of oil sands in Canada, and the development of oil off of Brazil -- we’ll see a western hemisphere that will become largely self-sufficient. Not completely, because oil will still flow in, but it means a change in the position of the western hemisphere and the United States.
Another big impact, which was not anticipated, but which President Obama had talked about in his 2012 State of the Union address, is that this has turned out to be a major boost to the U.S. economy, what’s happening with oil [and] natural gas.
In our own work (at IHS), we calculate that something like 1.7 million jobs in the United States are supported by this revolution in unconventional oil and natural gas. Last year, $62 billion of government revenues [were generated] from this. So this has been a very significant contribution to the U.S. economy during a downturn when, generally, conditions were kind of bleak.
RFE/RL: What’s your opinion of shale, and in particular, hydraulic fracking -- which one European nation, France, has banned and others are considering banning?
Yergin: In the U.S., shale gas has gone from a decade ago being 2 percent of our natural gas supply to today being 40 percent. I was on the commission that President Obama set up to review the environmental aspects of shale gas. And the conclusion of our commission, which included a number of distinguished scientists -- is that there are a series of environmental issues that need to be managed in this sensitive industrial process, and it needs to be managed properly and regulated properly -- it’s mainly regulated by the states now. But [we found] that it is manageable. If it wasn’t it wouldn’t be 40 percent of our natural gas supply today.
[There is a] different position in Europe, where the circumstances are different. The British government has been quite favorable towards development of shale gas, but it’s only very preliminary drilling, exploration to determine what’s there.
The European Energy Commissioner has said [very recently] that Europe ought to think about developing shale gas. France has said no to it, Germany is -- largely from a policy point of view - not very supportive. Poland and Ukraine see this as very important for economic [reasons] and energy security, but again, it’s moving slowly.
So I think the answer is that there are differences among the states. There’s certainly strong environmental opposition, particularly in France, but it’s going to develop more slowly in Europe.
I think the thing that’s different now is that in the last several months, the private sector -- industrial sector -- in Europe has become very concerned about losing economic competitiveness against North America because of the more inexpensive energy in North America. Even the Chinese are somewhat concerned about that.
As Europeans worry about economic growth, about being in recession, about very high unemployment rates, some may start to connect that to [the idea] that maybe they should try and accelerate this development and get some of the benefits that the United States is seeing today.
The U.S. Department of Energy has just given permission to a second facility to export liquefied natural gas to Japan and other countries, and that’s a recognition, as well, that our supplies are much more abundant than we imagined a few years ago.
And this is a lower carbon energy resource that many people want to use. The Japanese are using it to make up for their nuclear power plants that have been shut down, and China, because of its terrible, terrible air pollution, wants to replace coal with natural gas, and the U.S. will be one of the suppliers, and five years ago that would have seemed impossible to imagine.
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