Due largely to the contribution of liquids-focused shale developments such as the Bakken shale in North Dakota, the Eagle Ford in Texas, and the Niobara in Colorado, Kansas, Nebraska and Wyoming, US oil production increased by 6% between 2009-11, with output this year averaging 6.2 million barrels per day (MBD) through May. That is more than 25% above the 2008 low point for US field production. Together with reduced demand from the weak economy and improved energy efficiency, shale oil has helped reduce US oil imports from 60% of total supply in 2005-6 to 46% last year. In its latest forecast the US Energy Information Agency (EIA) projects that these trends would drive net oil imports down to just 36% of supply by 2035, even with oil production only growing to 6.7 MBD in 2020 before declining again. Yet that production forecast looks conservative compared to others, including a recent forecast from Citigroup, which suggested that US liquids output--including natural gas liquids but excluding biofuels--could grow from 8 MBD in 2011 to 14 MBD by 2020, based on shale development and expanded deepwater production.
Many uncertainties govern global oil markets, including significant uncertainties about the future pace of US and international shale oil development, so the ultimate effect of these new supplies on future oil prices is unknown. Still, they seem consistent with a lower oil-price future than would have been credible just a few years ago, while indicating that the expected shift in market power and geopolitical influence toward OPEC and away from major consuming countries such as the US and China could be postponed or at least diluted for years to come. That would have profound consequences for the US and global economies and for the geopolitics of energy.
Meanwhile, shale gas has not yet reached its maximum output in the US and is still in its infancy elsewhere. The EIA forecasts a further 22% growth in total US gas production from 2011 levels by 2035. Production would exceed domestic demand by 2022, despite further inroads by gas in power generation to provide 28% of electricity, largely at the expense of coal. Shale output is expected to account for roughly half of US natural gas production by 2035. Even after compensating for declining US conventional gas output, this should be sufficient to jump-start new gas demand sectors, including in transportation and for exports of liquefied natural gas (LNG).
The US is expected to become a consistent LNG exporter even before the point of net exports is reached, for two reasons. US gas will be available for export before then, because significant quantities of Canadian gas are likely to continue flowing to the US due to infrastructure and other logistical factors. At the same time, the wide gap between international LNG prices, often linked to oil prices, and most domestic gas markets provides an economic incentive for exports. This switch from LNG imports to exports is already reshaping international LNG markets. Nor is this the only important shift, globally. In its "Golden Age of Gas" report in 2011, the International Energy Agency proposed that global gas production could grow by more than 50% over 2010 levels by 2035, with the share of unconventional gas "rising from 12% in 2008 to nearly 25% in 2035."
Not long ago, US oil and gas production appeared to be in a permanent state of decline, leading to serious concerns about growing import dependence for both. Many regarded renewable energy sources such as wind, solar and geothermal energy and biofuels as the only solution, even though it was clear to most experts that it would take decades for them to reach the necessary scale. Yet in just a few years shale development has emerged to provide a robust bridge between declining conventional hydrocarbons and expanding renewables, if not a new base supply altogether. The resulting reduction in energy dependence might not entirely insulate the US from future oil price spikes, but it will mitigate their impact on US trade and fiscal deficits. Other implications of the shale revolution are just beginning to be felt, both in the US and globally.