U.S. Oil Output to Overtake Saudi Arabia’s by 2020

Nov. 12 (Bloomberg) -- Alix Steel reports on oil drilling in the United States. She speaks with Deirdre Bolton on Bloomberg Television's "Money Moves." (Source: Bloomberg)

U.S. oil output is poised to surpass Saudi Arabia’s in the next decade, making the world’s biggest fuel consumer almost self-reliant and putting it on track to become a net exporter, the International Energy Agency said.

Growing supplies of crude extracted through new technology including hydraulic fracturing of underground rock formations will transform the U.S. into the largest producer for about five years starting about 2020, the Paris-based adviser to 28 nations said today in its annual World Energy Outlook. The U.S. met 83 percent of its energy needs in the first six months of this year, according to the Energy Department in Washington.

“The IEA outlook feeds into the idea of a shift in the center of influence in the world oil market,” said Gareth Lewis-Davies, an analyst at BNP Paribas SA in London. “Given Saudi Arabia is willing to shift production up and down it will retain a large degree of influence, and remain important as a price-influencer.”

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The U.S., whose crude imports have fallen 11 percent this year, is on track to produce the most oil since 1991, according to Energy Department data. In a year when Iran has threatened to halt Persian Gulf oil shipments, the growing output, coupled with a gas-production boom, may help insulate the nation from supply disruptions. President Barack Obama cited “freeing ourselves from foreign oil” as a policy goal in his election victory speech last week, echoing his predecessor, George W. Bush, who in 2006 urged the U.S. to break its “addiction” to imported crude.

Photographer: Patrick T. Fallon/Bloomberg

The U.S. met 83 percent of its energy needs in the first six months of this year, on track to be the highest annual level since 1991, according to Energy Department data. Close

The U.S. met 83 percent of its energy needs in the first six months of this year, on... Read More

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Photographer: Patrick T. Fallon/Bloomberg

The U.S. met 83 percent of its energy needs in the first six months of this year, on track to be the highest annual level since 1991, according to Energy Department data.

Oil Prices

West Texas Intermediate crude, the benchmark U.S. grade, has dropped 13 percent this year to $85.55 a barrel on the New York Mercantile Exchange, as stockpiles swelled to a 22-year high. Prices have more than quadrupled in the past decade, reaching as high as $147.27 a barrel in July 2008.

Global demand for oil is projected to rise to 99.7 million barrels a day in 2035, up from 87.4 million last year, according to the IEA, which advises industrialized nations including the U.S., Germany and Japan. Today’s report projects trends to 2035.

Saudi Arabia pumped 9.8 million barrels of oil a day last month, according to data compiled by Bloomberg. U.S. output was 6.7 million barrels a day in the week ended Nov. 2, according to the Energy Department.

Overtaking Saudi Arabia

The U.S. will pump 11.1 million barrels of oil a day in 2020 and 10.9 million in 2025, the IEA said. Those figures are 500,000 barrels a day and 100,000 barrels a day higher, respectively, than its forecasts for Saudi Arabia for those years. The desert kingdom is due to become the biggest producer again by 2030, pumping 11.4 million barrels a day versus 10.2 million in the U.S.

Photographer: Eddie Seal/Bloomberg

Orion Drilling Co.'s Polaris oil and gas drilling rig at the company's assembly and integration facility in Corpus Christi, Texas. Growing supply of oil extracted from underground rock formations will transform the U.S. into the world’s largest crude producer. Close

Orion Drilling Co.'s Polaris oil and gas drilling rig at the company's assembly and... Read More

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Photographer: Eddie Seal/Bloomberg

Orion Drilling Co.'s Polaris oil and gas drilling rig at the company's assembly and integration facility in Corpus Christi, Texas. Growing supply of oil extracted from underground rock formations will transform the U.S. into the world’s largest crude producer.

“Around 2017, the U.S. will be the largest oil producer of the world, overtaking Saudi Arabia,” IEA Chief Economist Fatih Birol said at a press conference in London today. “This is of course a major development and definitely will have significant implications.”

Officials at the U.S. Energy Department weren’t available for comment because government offices were closed in observance of the U.S. Veteran’s Day holiday today. A Saudi Arabian oil ministry official based in Riyadh wasn’t immediately available to comment on the report when contacted by phone today.

The IEA report described the U.S.’s advancement toward energy self-sufficiency as “a dramatic reversal of the trend seen in most other energy-importing countries.” The nation is developing so-called tight oil reserves including the Bakken shale formation, which are extracted by hydraulic fracturing or horizontal drilling.

Shrinking Imports

U.S. oil imports will drop to about 4 million barrels a day in 10 years from a current average of 10 million because of new production and stricter fuel-efficiency standards for cars and trucks, which will curb demand, Birol said.

The IEA isn’t alone in forecasting that the U.S. will overtake Saudi Arabia and Russia to become the largest oil producer. The U.S. will achieve that goal before the end of this decade, Citigroup Inc. said in a March 20 report that included biofuels and natural gas liquids in its calculations.

The European Union banned oil imports from Iran in July over the nation’s nuclear program, reducing shipments from a country that was until then the second-biggest producer in OPEC.

The IEA’s members will probably pay about $125 a barrel for imported oil by 2035, compared with Brent crude prices near $109 today on London’s ICE Futures Europe exchange. The North Sea grade peaked at a record $147.50 a barrel in July 2008 before tumbling to about $46 that December, and has gained in each of the three years since then.

‘Epic Failure’

Efforts by global policy makers to promote energy efficiency have been an “epic failure” and fallen short of their economic potential, Birol said. Increased energy-saving measures could cut worldwide oil demand by almost 13 million barrels a day by 2035, or the current combined output of Russia and Norway. Put another way, were efficiency measures suggested by the IEA enacted in full, the increase in world energy demand over the period would be cut in half.

Natural gas consumption will rise in the forecast period, driven by China, India and the Middle East.

“In the United States, low prices and abundant supply see gas overtake oil around 2030 to become the largest fuel in the energy mix,” according to the report, written by a team of researchers led by Birol.

Iraqi Surge

Iraq will be the biggest contributor to new oil supplies, raising production to 6 million barrels a day by 2020. By 2035, the nation’s output rate will rise to more than 8 million, overtaking Russia to become the world’s second-largest exporter, the IEA said. The country pumped 3.4 million barrels a day last month, making it the second-largest producer in the Organization of Petroleum Exporting Countries, after Saudi Arabia, according to Bloomberg estimates.

The forecasts for Iraq, a special focus of this year’s IEA outlook, were previously published on Oct. 9.

In emerging nations, government subsidies will continue to spur fossil fuels use, even as lower-carbon energy sources become more popular. State subsidies cost $523 billion last year, up almost 30 percent from 2010. Subsidy programs, which remain most prevalent in the Middle East and North Africa, have become more expensive as oil prices rose, the agency said.

To contact the reporter on this story: Lananh Nguyen in London at lnguyen35@bloomberg.net

To contact the editor responsible for this story: Stephen Voss at sev@bloomberg.net

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