Syed Rashid Husain The Edwardian I Conference room of the Crown Plaza Hotel in London is now almost synonymous with World Energy Outlook - the most eagerly awaited annual document, churned out from the center of the energy world – the International Energy Agency. For many years, in the first half of November, global headlines generally scream with the WEO findings which point to the major trends the industry was faced with at that particular point in time. And this year appears no different. Last Monday at 10 in the morning, London time, Maria van der Hoeven, the Executive Director of the IEA, along with old friend Fatih Birol, the principal author, unveiled the agency flagship before an eager audience. The world is changing rapidly and so is the energy world. And the change is more apparent, more prominent and more conspicuous to the energy world. There has been a dramatic reversal of trends, especially over the last few years, as far as the energy world was concerned and the WEO 2012, unveiled last Monday, depicts that and in abundance. The stage is now set for a major adjustment in the global geopolitics. Some four years back, when this columnist asked Secretary Steve Chu, while he was still a newborn in the Washington political environment, if the crude glue that kept Washington and Riyadh bonded together for decades, was slowly and gradually peeling off, the academician in the secretary rather than mincing words, smiled and said straight: “Yes, and we need to find and create new bondages between the two countries." Global headlines are today screaming: The United States will overtake Saudi Arabia as the world's leading oil producer by about 2017 and will become a net oil exporter by 2030. The eagerly sought energy independence of North America is now an almost reality. “North America is at the forefront of a sweeping transformation in oil and gas production that will affect all regions of the world," said van der Hoeven. “The foundations of the global energy systems are shifting," Birol, the IEA chief economist, too said just before the release. There are several components of the sudden shift in the world's energy supply, but the prime mover is a resurgence of oil and gas production in the United States, particularly the unlocking of new reserves of oil and gas found in shale rock. Consequently, US oil imports will drop to about 4 million barrels a day in 10 years from a current average of 10 million bpd due to new production and stricter fuel-efficiency standards for cars and trucks, which will curb demand. The US perceived self-sufficiency was 55 percent a reflection of more oil production and 45 percent a reflection of improving energy efficiency in the United States, primarily from the Obama administration's new fuel economy standards for cars, Birol underlined. WEO 2012 also predicts another interesting phenomenon: The US would overtake Russia in gas production by 2015. And there are reasons for this projection. With output from the Bakken formation in North Dakota and Montana creeping up, rather exponentially, some in the industry are beginning to ask if this is the Ghawar of the 21st century. Output from the formation has already hit 631,000 barrels per day (bpd) in August 2012, up from 256,000 in August 2010 and just 83,000 bpd in August 2008. Output has been increasing at a steady rate of about 65 percent a year since late 2009 and shows no sign of slowing. If growth continues at this pace for the next 12 months, production will top 1 million barrels a day by August 2013, earning it a place in the small pantheon of truly elite oil fields. And in the meantime, drillers in Utah and Colorado are already poking into a massive shale deposit, endeavoring to unlock oil reserves that are so vast they would swamp OPEC. A recent report by the US Government Accountability Office (GAO) estimated that if half of the oil bound up in the rock of the Green River Formation could be recovered, it would be “equal to the entire world's proven oil reserves." Indeed the cost of extracting the Green River oil at the moment would be higher than what it could be sold for. And significant environmental obstacles stand in the way too. However, both the GAO and private industry estimate that the amount of oil recoverable here to be 3 trillion barrels. “In the past 100 years - in all of human history - we have consumed 1 trillion barrels of oil. There are several times that much here," said Roger Day, vice president for operations for American Shale Oil (AMSO). And although it has not been much highlighted in the international press, the WEO 2012 also points out that in the longer run Saudi Arabia remains the kingpin of the energy world. The report, while pointing out that US oil production would rise to 10 million bpd by 2015 and to 11.1 million bpd in 2020 before slipping to 9.2 million bpd by 2035, it also underlines the Saudi oil output is projected to be 10.9 million bpd by 2015, 10.6 million bpd in 2020 and 12.3million bpd by 2035. The crown would revert to Riyadh within a few years. And let be assured, Riyadh would remain a force to reckon with in the global energy order, one can easily deduce. WEO2012 also underlined the recovery of the Iraqi oil industry, with output projected to touch 6 million bpf 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. Canadian oil exports are also projected to tick higher in the coming years. Output from the oil sands is expected to grow rapidly, from 1.6 million bpd last year to 4.3 million bpd in 2035. When conventional oil is added in, Canada's expected oil output is forecast to touch 6.3 million bpd by 2035 from a mere two million bpd in 1990 and 3.5 million bpd last year. Efforts by global policy makers to promote energy efficiency have been an “epic failure" and fallen short of their economic potential, Birol underlined. Subsidies continue to haunt the IEA. State subsidies cost $523 billion last year, up almost 30 percent from 2010, the report added. The WEO 2012 points out another very interesting issue: ‘Water is essential to the production of energy, and the energy sector already accounts for 15 percent of the world's total water use. Its needs are set to grow, making water an increasingly important criterion for assessing the viability of energy projects. With water increasingly becoming an apple of discord the world over, this could easily be a scary phenomenon. In hindsight, what the former Halliburton CEO Dick Cheney once complained – “The problem is that the Good Lord didn't see fit to put oil and gas reserves in places where there are more democratic governments," doesn't seem to be true anymore. WEO-2012 simply acknowledges this!
