BP recently released its annual Energy Outlook, which explains its predictions for the global energy landscape over the next 20 years. While the report mentions the current market decline has created some difficulty the short term, BP says this slump in U.S. production is only temporary. The energy company anticipates a majority of the supply growth to come from non-OPEC countries in the Americas, with the U.S. leading that charge. The secret behind U.S. longevity, even with oil prices at record lows, is simple: fracking.
A new balance of power
As the current decline in oil prices are the result of a global oil glut, it’s been argued that continued record production from OPEC countries – Saudi Arabia specifically – has been an attempt to force U.S. producers out of the global market. But according to BP, that plan is expected to fail. U.S. tight oil production will not only withstand the current market weakness, but will prosper.
With fracking unlocking such a wealth of natural resources in the U.S., BP emphasized the likely shift away from OPEC produced oil will account for the majority of increased global supply. Non-OPEC countries will be responsible for the largest source of supply growth by 2035, of which U.S. shale (crude and natural gas liquids) will make up a significant portion. As the report notes:
“The shifting pattern of demand and supply cause regional oil imbalances to shift and become more concentrated…In particular, the increase in tight oil production, coupled with declining demand, further reduces North America’s reliance on oil imports, with the region set to become self-sufficient in oil over the next few years. The removal of the US crude export ban helps this adjustment process.” (p. 27)
But you don’t have to look to 2035 to see that fracking is improving U.S. energy security and shifting trends in the global oil and natural gas market. Just this week, the U.S. Bureau of Economic Analysis (BEA) reported that, for the first time ever, the U.S recorded a trade surplus with OPEC. Additionally Venezuela, a member of OPEC and home to the world’s largest oil reserves, began importing crude from the U.S. as fracking has made importation of U.S. crude less expensive than domestic production.
Fracking and technological efficiencies key to U.S. energy success
According to the report, the U.S. is expected to lead the world in terms of tight oil production – projecting U.S. shale oil output to double by 2035 – thanks to technological advances in fracking driving efficiency. As the report mentions:
“After a brief retrenchment due to low prices and falling investment, US tight oil production is now expected to plateau in the 2030s at nearly 8 [million barrel per day] Mb/d, accounting for almost 40% of total US oil production” (p. 53)
The U.S. is not just expected to be a top global producer in oil though, but also natural gas. According to the report, natural gas is currently the fastest growing fossil fuel. This is great news for U.S. producers who, with the help of fracking, have dominated the growth of global shale supply and are projected to continue:
“US shale gas is expected to grow by around 4% [per annum] p.a. over the Outlook. This causes US shale gas to account for around three-quarters of total US gas production in 2035 and almost 20% of global output.” (p. 53)
In fact, fracking has helped the U.S. become so successful in producing oil and natural gas, it’s almost come as a shock to analysts at BP (although, this is not news to us). As the report states:
“We have been repeatedly surprised by the strength of US tight oil and shale gas. Technological innovation and productivity gains have unlocked vast resources of tight oil and shale gas, causing us to revise the outlook for US production successively higher.” (p. 53)
Overall, BP’s Energy Outlook paints an optimistic picture for the energy landscape over the next two decades, showing that OPEC’s strategy to reduce U.S. production will likely fail. Innovation in fracking technology will help the U.S. continue to be one of the world’s top producers.