The United States could see a surge in oil production that could make it the world’s leading oil producer within a decade, according to a new report from the International Energy Agency. But that lead will likely be temporary, and it still won’t allow the United States to stop importing oil. Barring technological breakthroughs in oil production and major reductions in consumption, the United States will need to rely on oil from outside its borders for the foreseeable future.
This week’s IEA report predicts that a relatively new technology for extracting oil from shale rock could make the United States the world’s leading oil producer within a decade, beating the current leader, Saudi Arabia. The idea that the U.S. could overtake Saudi Arabia, even temporarily, is a stunning development after years of seemingly inexorable declines in domestic oil production. U.S. production had fallen from 10 million barrels a day in the 1980s to 6.9 barrels per day in 2008, even as consumption increased from 15.7 million barrels per day in 1985 to 19.5 million barrels per day in 2008. The IEA estimates that production could reach 11.1 million barrels per day by 2020, almost entirely because of increases in the production of shale oil, which is extracted using the same horizontal drilling and fracking techniques that have flooded the U.S. with cheap natural gas.
As of the end of 2011, production had already increased to 8.1 million barrels per day, almost entirely because of shale oil. Production from two major shale resources in the U.S.—the Bakken formation in North Dakota and Montana and the Eagle Ford shale in Texas, now total about 900,000 barrels per day. In comparison, Saudi Arabia is expected to produce 10.6 million barrels per day in 2020.The shale oil resource, however, is limited. The IEA expects production to start gradually declining by the mid-2020s, at which time Saudi Arabia will reclaim the top spot.
Shale oil is creating a surge in U.S. oil production in part because it’s easy to find, says David Houseknecht, a scientist at the U.S. Geological Survey. The oil is spread over large areas, compared to the relatively small pockets of more conventional oil deposits in the United States. So whereas wildcatters drilling for conventional oil might come up empty two-thirds of the time or more, over 95 percent of shale oil wells strike oil.
Just how much shale oil can be produced—and how fast—depends heavily on two factors: the price of oil, and how easy it is to overcome possible local objections to oil fracking, says Richard Sears, a former executive at Royal Dutch Shell and a visiting scientist at MIT. Oil shale costs significantly more to produce than oil in Saudi Arabia and many other parts of the world, so for oil companies to go after this resource, oil prices need to stay relatively high. It’s hard to put a firm number on it, but Sears estimates that $50 to $60 a barrel would be enough, compared to the $85 per barrel price of oil now. Houseknecht puts the cost of production at closer to $70 a barrel. Although costs for producing conventional oil in the Middle East also vary, they typically don’t change more than $10 per barrel.