The announcement by the International Energy Agency that the U.S. will surpass Saudi Arabia in oil production by 2020 is testimony to the power of technology to change an industry. The U.S. is developing so-called tight oil reserves, including the huge Bakken shale formation in Montana and North Dakota, by extracting the oil through hydraulic fracturing and horizontal drilling, techniques that weren’t available 30 years ago.
Within 10 years, U.S. oil imports will drop to about 4 million barrels a day from a current average of 10 million, thanks to new oil production in the U.S. and stricter fuel-efficiency standards for cars and trucks, IEA Chief Economist Fatih Birol said at a London press conference on Nov. 12. The U.S. will pump 11.1 million barrels of oil a day in 2020 and 10.9 million in 2025, according to the IEA. Those figures are 500,000 barrels and 100,000 barrels higher, respectively, than its forecasts for Saudi Arabia for those years.
The U.S. is not destined to become the next Saudi Arabia, though. “Given Saudi Arabia is willing to shift production up and down, it will retain a large degree of influence and remain important as a price-influencer,” says Gareth Lewis-Davies, an analyst at BNP Paribas (BNP:FP) in London. The U.S. will be the world’s top producer for about five years, starting in 2020. Sometime after that, U.S. production will slip behind Saudi Arabia’s again, according to the IEA’s Birol.
One group remains skeptical: the peak oil advocates, who say global production of oil has already peaked or will peak soon. By 2015, they say, U.S. output will start falling again. Kjell Aleklett, a physics professor at Uppsala University in Sweden and president of the Association for the Study of Peak Oil and Gas, acknowledges that the theory’s backers didn’t predict the U.S. production increase. “We were wrong that it was not possible for U.S. [production] to swing back again. But we don’t know how high the swing will be,” he says. “The shale production we are talking about relies on thousands of wells drilled every year. If drilling capacity should go down, or for some reason it becomes too expensive, then production will go down very fast.”