A new report from the International Energy Agency (IEA) predicts that despite low oil prices, domestic shale gas and tight oil production are on the upswing due to innovative technologies.  Furthermore, this production will allow the U.S. to remain a leading global producer.

In the IEA’s annual Medium-Tem Oil Market Report, the agency predicts that US oil production will reach record highs over the next five years due to this continued innovation in the hydraulic fracturing (fracking) process.

While the report does concede that US tight oil production still faces challenges from the global supply glut, IEA predicts the markets will re-balance over the next two years, after which the US will lead global oil production gains. As the press release states:

“US production is seen reaching an all-time high of 14.2 [million barrels per day] by the end of the forecast period, but only after falling in the short term.”

These predictions reaffirm the findings of several other recent government and industry reports, such as BP’s Global Energy Outlook and the U.S. Energy Information Administration’s Short Term Energy Outlook (EIA).

In its Global Energy Outlook, BP notes that economists and industry enthusiasts have a long history of underestimating the outlook for U.S. shale, and have to consistently revise up their forecasts.

As BP Economist Spencer Dale described:

“We have been repeatedly surprised by the strength of U.S. shale, technological innovations and productivity gains have unlocked vast resources of tight oil and shale gas, causing us to revise our projections successively higher.  This year is no exception, with sizeable up revisions for both tight oil and shale gas.” (Emphasis added)

While gains will be made for both tight oil and shale gas the U.S. has more shale gas resources and shale gas is not expected to plateau any time in the near future.  Due to this reality, BP’s Dale predicts that:

“By 2035 U.S. shale gas [will] account for ¾ of total U.S. production and almost 20% of global output” (Emphasis added)

The EIA’s Short Term Energy Outlook, published this month, echoes the importance of tight oil to the overall U.S. energy picture, stating:

“The focus of drilling and production activities will be on the core areas of major tight oil plays.  Despite the significant decline in total rig counts in 2015, rig counts have largely stabilized in the core counties of the Bakken, Eagle Ford, Niobrara, and Permian.  In these areas, falling costs and ongoing technological and process improvements in rig, labor, and well productivity are anticipated to lead to faster rates of well completions and less-rapid production declines relative to other Lower 48 onshore areas.”  (Emphasis added)

As we’ve mentioned before, the continued decline in the global oil market has been spurred on by the Saudi Arabia led Organization of Petroleum Exporting Countries (OPEC). In an attempt to push out rivals such as the United States and maintain the cartel’s large market share, OPEC flooded the market with record amounts of supply, pushing down oil prices and forcing producers out of the market.

OPEC however, failed to account for US technological innovation, as ever increasing fracking efficiency has allowed US oil production to withstand the current market weakness (not to mention allowed the US to record its first ever trade surplus with OPEC last year). This efficiency will ultimately position the US as a global leader in terms of supply growth, as the IEA’s press release mentions:

“[Light, tight oil] output declines by 0.6 mb/d this year and by a further 0.2 mb/d in 2017 before a gradual recovery in oil prices, combined with further improvements in operation efficiencies and cost cutting, allows production to resume its upward climb. The United States remains the largest contributor to supply growth during the forecast period, accounting for more than two-thirds of the net non-OPEC increase.”

The strength of domestically produced shale vis-à-vis OPEC was also noted in an article published in The Telegraph, which neatly summarized IEA’s findings:

“The current crash in oil prices is sowing the seeds of a powerful rebound and a potential supply crunch by the end of the decade, but the prize may go to the US shale industry rather [than] OPEC, the world’s energy watchdog has predicted.”

This prediction is based upon the fact that once prices hit $60, shale operations would be able to come back to life in a few short months, which is far quicker than the more conventional operations that account for OPEC’ supply.

The IEA further touted US shale oil production (referred to in the report as “light, tight oil”, or LTO) in a statement to Reuters, as the agency said:

“Anybody who believes that we have seen the last of rising LTO production in the United States should think again; by the end of our forecast in 2021, total U.S. liquids production will have increased by a net 1.3 million bpd compared to 2015.”

This is great news for American shale operations and the jobs this industry supports.