In its new World Energy Outlook report, The International Energy Agency (IEA) says a shift is global oil production could transform energy supplies, US politics, and international diplomacy. The Paris-based advisory agency said the global energy map is being redrawn by robust oil and gas production in the United States.
The surge in U.S. oil production is projected to reach 11.1 million barrels a day in 2020 – and in the process will create many new jobs and boost US prosperity, especially in regions affected by energy production.
Rising use of natural gas over coal to generate electricity helps reduce carbon-dioxide emissions without legislation. U.S. carbon-dioxide emissions from energy consumption fell 5.3% in the first seven months of 2012, as natural gas use rose 24% over 2011. The IEA said natural gas would displace oil as the largest single fuel in the U.S. energy mix by 2030.
U.S. oil consumption last year dropped to 18.9 million barrels a day, down 8.4% from 2006, and the IEA projected continued declines in coming decades. Meanwhile, the IEA predicts U.S. oil imports will fall by more than half, to four million barrels a day from 10 million barrels a day currently.
If the IEA is right, the U.S. could soon experience a glut of easier-to-process domestic crude oil with no easy way to deal with excess supplies mainly due to U.S. laws banning crude-oil exports. Analysts say allowing exports could be politically tricky because the export ban was designed to ensure U.S. energy security following the Arab oil embargo in 1973.
If these old laws stand, companies would be forced to upgrade old refining equipment designed to deal with heavier imported crude products and create refining capacity for lighter, sweeter grades of oil.
The report also states that renewable energy – including wind energy and solar power – will become the world’s second-largest source of power generation by 2015 and will close in on coal as the primary source by 2035. However, this rapid increase hinges critically on continued subsidies, and needs to amount to $4.8 trillion in subsidies through 2035, versus $88 billion in 2011.
Renewables – including wind energy and solar power – will become the world’s second-largest source of power generation by 2015 and will close in on coal as the primary source by 2035, according to the report. However, this rapid increase hinges critically on continued subsidies, and needs to amount to $4.8 trillion in subsidies through 2035, versus $88 billion in 2011.
In its Efficient World Scenario, the IEA shows that greater efforts on energy efficiency would cut the growth in global energy demand by half by adopting improvements that are economically justified. In this scenario, global oil demand would peak before 2020 and be almost 13 mb/d lower by 2035, which would boost global economic output by $18 trillion.
The IEA also noted that U.S. energy independence could redefine military commitments. Since World War II, the protection of Middle East sea lanes has been a core mission of the US military. It costs between $60 billion and $80 billion a year. Given budget deficits, defense cuts on the table, and an overstretched Navy, that mission could come into question.
Domestic issues may impact the US energy boom too. Environmental groups have expressed concerns about risks to groundwater from fracking. The Environmental Protection Agency (EPA) is due to complete a potentially strict set of emissions rules for new power plants, which could make new coal-fired plants prohibitively expensive.
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To view the complete IEA report, click here