1. QNB Economics
economics@qnb.com.qa
25 May 2013
The US could become energy independent by 2030
The application of new techniques for extracting
hydrocarbons, that were previously not economical, is
changing the rules of game for global oil and gas,
particularly in the US. QNB Group explains that not
only will the US soon become a net exporter of gas, it is
also likely to eventually become self-sufficient in oil.
All hydrocarbons originate from organic material
(plants and animals) that was deposited many millions
of years ago in lakes, seas and forests. Over time, some
of these deposits were buried, compressed and heated,
converting them into oil, gas and coal. In places these
deposits formed large pools of oil and gas in permeable
rock that is relatively easy to access and convert into
useable fuels. These are known as “conventional”
hydrocarbon reserves and provide the bulk of current
production. Barring a few frontier areas, such as the
Arctic, it is widely believed that most major
conventional fields have been discovered. Moreover
global conventional crude production seems to have
peaked and to be in gradual decline.
However, the decline is being more than offset by new
production from “unconventional” reserves. The
distinctions are fuzzy, but generally this term refers to
oil and gas that is more complicated to exploit either
because of the kind of rocks it is located in, its
concentration levels or its chemical composition. In
recent years, oil and gas companies have refined
techniques for exploiting these kinds of reserves.
The most attention has been given to shale gas, which is
unlocked through fracturing the impermeable shale rock
by pumping water, sand and lubricants through
horizontal drill holes. This technology, called fracking,
is expected make the US self-sufficient in gas within
about four years, and a net exporter thereafter.
Similar techniques are being used to extract previously
inaccessible oil, known as “light tight oil”, also locked
away in shale and sandstone rock formations. The
prime example of tight oil production in the US is the
Bakken shale formation in North Dakota. Oil has been
produced from the region since the 1950s, but at low
levels. However, as the new techniques have been
introduced, production has soared from just 10k b/d in
2006 to 719k b/d in March 2013. In total, the US’s
Energy Intelligence Administration (EIA) estimates that
its tight oil production reached 2.0m b/d in 2012, up
0.8m b/d on 2011. Its share of US crude production has
risen from 11% in 2010 to 32% in 2012.
US Crude Oil Production (1990-2020)
(mbarrels per day)
Source: EIA, QNB Group analysis
0
1
2
3
4
5
6
7
8
2015 2020
Tight
oilConventionalcrude
1990
38%
1995 2000
32%
2005
11%
2010
The EIA forecasts that US tight oil production will rise
a further 0.8m b/d by 2020, when it will represent
nearly 40% of US crude production. The latest medium
term forecast from the International Energy Agency
(IEA), released on May 14th
, is more bullish. It
forecasts an additional 1.5m b/d over 2012 production
by 2018. This would mean that US tight oil would
provide over a quarter of the new crude production
globally until 2018, more even than Iraq is expected to
contribute. BP is even more optimistic, forecasting that
US tight oil production will increase by 2.8m b/d by
2020.
Earlier IEA forecasts suggested that the US could
overtake Russia and Saudi Arabia to become the
world’s biggest oil producer (including condensates and
natural gas liquids) as soon as 2017. Moreover it
expects the US to become energy independent by 2030.
By contrast, in 2011, the US depended on oil imports
for 45% of its consumption.
Outside the US, the IEA does not see tight oil
production being developed in a significant way before
the end of this decade. As with shale gas, other

2. QNB Economics
economics@qnb.com.qa
25 May 2013
countries will struggle to replicate the US tight oil
boom because of specific local factors. In particular, the
US has a strong oilfield services sector and a large fleet
of drilling rigs which is essential given the greater work
required to extract tight oil than conventional crude
(over 5,000 rigs are now operating in the Bakken Shale
alone).
The largest reserves of tight oil are estimated to be in
Eastern China. The German Federal Institute for
Geosciences and Natural Resources (BGR) estimates
that there could be around 300bn barrels of recoverable
tight oil in China, more than 10 times the (conservative)
estimates of US reserves. BP gives more conservative
figures, estimating just 240bn barrels of technically
recoverable tight oil reserves globally. Nonetheless, it
sees tight oil production growing by 9m b/d globally by
2030, proving more than half of the growth in global
crude production over this period.
QNB Group notes that there is considerable uncertainty
about the likely pace of tight oil production growth both
in the US and globally. While it will certainly boost
global oil supply, its high production cost, currently
around US$50-$70 per barrel, means that it is unlikely
to cause substantial downwards pressure on global oil
prices. Moreover, Khalid al-Falih, chief executive of
Saudi Aramco, welcomed the tight oil developments
during a recent visit to the US. He argued that the
possibility of tight oil production will reduce concerns
about security of supply and lock in demand for oil for
the long term, in favour of other energy sources,
benefiting major conventional producers.
** Ends **