Thanks to fracking, the United States is reaching the top spot among world oil producers sooner than expected, and is well on its way to realizing the American dream of energy independence. This was the conclusion of the International Energy Agency (IEA) 2013 World Energy Outlook released last week. But the IEA's report goes on to say, "this does not mean that the world is on the cusp of a new era of oil abundance," because, according to the Paris-based organization that represents the interests of Western oil-consuming countries, it would be extremely difficult for other countries to replicate the U.S. success in fracking or in acquiring other unconventional oil recovery technologies. According to the IEA's report, the availability of geologically suitable conditions for shale oil and gas production is not enough by itself to make fracking a success. The experience of countries outside of North America indicates that there is a need to have suitable and flexible regulatory frameworks, in addition to an advanced technical services industry in order to produce shale oil and gas commercially. Until 2012, more than 6,000 shale oil wells were drilled in North America, compared to only about 100 wells in the rest of the world. The IEA suggests that oil output in the United States would reach around 11 million barrels per day by 2015, peaking at about 12 million barrels per day in 2025, after which output would begin to decline gradually. These projections mean that the increase in the production of shale oil will be limited to within North America on the one hand, and secondly, that shale oil reserves, unlike conventional oil – especially oil from the Middle East oil where discoveries continue to be made – are limited, and are not expected to rise significantly to meet sustained increase in the global demand for energy. Furthermore, shale oil production requires continuous investments to develop fields and drill new wells, to offset reduced productivity from old wells, which means continuous drilling of wells. The IEA notes that fossil fuel consumption, including consumption of crude oil, natural gas, and coal, represents 82 percent of total global energy consumption at present, which is the same level from a quarter of a century ago. The IEA does not expect a marked change in this consumption trend over the next decade. This means that sustainable energy alternatives will not be able to compete with fossil fuels over the next decade and take over the latter's market share. Thus, the IEA predicts that "by the mid-2020s, the Middle East—the world's only source of low-cost oil—will again be unchallenged as the most important and influential source of oil supply on the globe." There are two key factors driving the increase in output from unconventional oil fields, namely, the continuous and unprecedented persistence of oil prices at high levels, encouraging risk-taking and investment in unconventional oil fields such as in shale in the United States or deep-sea exploration in the Atlantic Ocean off the Brazilian coast. Brazil has been able, especially through its national oil company Petrobras, over the past decade, to discover many mega fields, mostly offshore. These fields have accounted for the bulk of global mega field discoveries during the past decade. Another thing that helped achieve these successes was the major advances in technology, especially in seismic survey techniques. Because of these discoveries, Brazilian oil output is expected to rise to about 6 million barrels per day by 2035. As is known, Brazil also produces "green energy" through the rivers in its territory, in additional to ethanol extracted from sugarcane. Interestingly, most shale oil or Brazilian oil recovered from the deep sea is of the highly-demanded light crude blend, yet despite this, the IEA does not expect the two types of oil to represent a serious challenge in the long run to the three blends of Middle Eastern oil: light, medium, and heavy. The IEA's report addresses other issues pertaining to the major transformations in the global energy sector, including: The important changes taking place in the energy roles of different countries, as we now find that energy-importing nations are turning into energy-exporting nations, while there are indications that some exporting countries could turn into energy-consuming countries because of the high increases in their consumption levels. For example, the consumption of India and the countries of South Asia will rise and overtake China's consumption of energy. But one interesting and major change is that energy consumption in the Middle East will increase dramatically over the next decade, impacting the distribution of energy resources worldwide, with the IEA predicting that demand for energy in the Middle East would grow by 10 percent until 2035, with Middle Eastern countries consuming around 10 million barrels per day by 2035, or almost the same level of the demand for oil in China at present. Effective solutions to deal with global energy shifts remain limited. On the one hand, there is keen interest in rationalizing consumption to reduce demand, but remarkably, governments in 2012 continued to offer fossil fuel subsidies of up to $544 billion, which is of course a crucial factor in driving up consumption. Another factor is improvement in living standards, especially in developing nations, where there remain around 1.3 billion people without electric supply. Therefore, as their living standards improve, their energy consumption will increase. The IEA's forecasts differ from its projections in the past, having previously maintained that U.S. oil output, thanks to shale oil, would overtake Saudi output by 2017. Now, the IEA expects U.S. crude oil from both conventional and unconventional sources to reach 11 million barrels per day by 2015, which would be higher than Saudi's output. But the international agency does not expect U.S. oil output to peak before 2025 at 12 million barrels per day, after which output would begin to decline. * Mr. Khadduri is a consultant for MEES Oil & Gas (MeesEnergy)
