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World Energy Outlook Reveals Importance of U.S. Shale: Five Key Facts

The International Energy Agency recently released its 2013 World Energy Outlook, which revealed several important facts about the U.S. economy through 2035, particularly as it relates to the responsible development of U.S. shale.

First, it’s clear that shale development in the United States has reshaped the global energy market, and that the continued investment in developing these resources will last for many years to come.  America’s abundant supplies of oil and natural gas – unlocked by hydraulic fracturing and horizontal drilling – will also allow us to move toward greater energy security and keep energy prices low for the foreseeable future.  In turn, these low energy costs will strengthen U.S. competitiveness in the manufacturing sector, and even help us improve our balance of trade through exports of American-made products.  This is certainly good news for the U.S. economy, as it means more U.S. jobs, increased revenues for government, and a reduction in the trade deficit.

Below, we take a look at five of the key findings from the WEO.

FACT 1: U.S. oil and gas production reshapes the global energy market.

Unconventional oil and gas will play an ever expanding role in meeting the world’s energy needs.  The WEO acknowledges that the U.S. shale boom has caused a reassessment of global energy resources, and re-centered the market toward North America.

  • “The rise of unconventional oil and gas and of renewables is transforming our understanding of the distribution of the world’s energy resources.” (Executive Summary [“ES”] p.1)
  • Improved energy efficiency and a boom in unconventional oil and gas production help the United States to move steadily towards meeting almost all of its energy needs (in energy equivalent terms) from domestic resources by 2035.” (World Energy Outlook 2013 Factsheet [“FS”] p.1)
  • “IEA predicts that oil supply will increase to 101 mb/d by 2035 and that the [k]ey components of the increase are unconventional oil (up 10 mb/d) and natural gas liquids (NGLs) linked to the increase in global gas output (up 5 mb/d).” (FS p.3)

FACT 2: Shale development reduces household energy bills.

IEA also discusses the disparities in current energy prices throughout the world and how that may affect national economies.  What is clear is that the United States will have lower energy costs from the continued development of abundant shale oil and natural gas.

  • Natural gas prices have fallen sharply in the United States, largely because of the recent shale gas boom, and today are about one-third of import prices to Europe and one-fifth of those to Japan.” (FS p.2)
  • “Electricity price differentials are also large, with industrial consumers in Japan and Europe paying on average more than twice as much for electricity as their counterparts in the United States; even Chinese industrial consumers pay almost double the US level.” (FS p.2)
  • “The contrast between the United States and other large importers is striking: annual energy import bills in the United States have fallen by 40% since 2008, while they have increased slightly in the European Union and continued to climb in many other regions.” (FS p.2)

FACT 3: Affordable natural gas boosts American manufacturing.

The availability of low-cost natural gas has been a boon to U.S. manufacturers, especially in those sectors that require large amounts of energy.  The reduced energy costs have given manufacturers a significant advantage over other parts of the world, leading companies to relocate their facilities (and thousands of jobs) back to the United States.

  • “Energy costs can be vital to the competitiveness of energy-intensive industries, particularly where energy accounts for a significant share of total production costs and where the resulting goods are traded extensively.” (FS p.2)
  • Energy-intensive sectors – including chemicals, primary aluminium, cement, iron and steel, pulp and paper, glass and glass products, and refining – account globally for 20% of industrial value added, 25% of industrial employment and 70% of industrial energy use.” (FS p.2)
  • “Lower gas and electricity prices in 2012 in the United States relative to Europe equated to estimated savings of close to $130 billion for the entire US manufacturing industry.” (FS p.2)

FACT 4: Shale development reduces the U.S. trade deficit.

The United States will be the world’s largest producer of oil and a larger exporter of refined products within the next decade.  This will result in a decrease of imported crude oil and allow the United States to reduce its trade deficit.

  • “The United States is the world’s largest oil producer for much of the period to 2035. “ (FS p.3)
  • “The net North American requirement for crude imports all but disappears by 2035 and the region becomes a larger exporter of oil products. “ (ES p.5)
  • “The United States sees a slight increase in its share of global exports of energy-intensive goods, providing the clearest indication of the link between relatively low energy prices and the industrial outlook. By contrast, the European Union and Japan both see a strong decline in their export shares – a combined loss of around one-third of their current share.” (ES p.2)

FACT 5: Technological advancement helps us recover even more American oil.

The technological advancements such as combining hydraulic fracturing with horizontal drilling as well as 3-D and 4-D seismic imaging will allow the recovery of resources previously thought economically unrecoverable.  Sound familiar? If it doesn’t, remember that in 1995 the U.S. Geological Survey thought the Bakken shale in North Dakota only had about 150 million barrels of oil – the estimate now stands at about seven billion barrels.

  • “Technology unlocks new types of oil resources and improves recovery rates in existing fields, pushing up estimates of the amount of oil that remains to be produced.” (ES p.1)
  • “Total upstream spending in the oil and gas sectors is expected to rise to more than $700 billion in 2013, a new high…” (FS p.3)
  • “The rise of unconventional oil (including LTO) and natural gas liquids meets the growing gap between global oil demand, which rises by 14 mb/d to reach 101 mb/d in 2035, and production of conventional crude oil, which falls back slightly to 65 mb/d.” (ES p.4)

Opponents of U.S. shale development want us to believe that they’re advocating for America’s best interests by trying to halt hydraulic fracturing. This latest report from the IEA, like the 2012 WEO, suggests that’s simply not the case.

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