The surge in oil production in the U.S. and Canada and shrinking oil consumption in the developed world is transforming the global oil market.
The threat of chronic oil shortages is all but gone, U.S. dependence on Middle Eastern oil will continue to dwindle, and oil will increasingly flow to the developing economies of Asia, according to a five-year outlook published Tuesday by the International Energy Agency.
The changes will have “significant consequences for the global economy and oil security,” the IEA says.
The report paints a picture of a world with plenty of oil to meet modestly growing demand. Where the oil is coming from, and where it is going, is changing dramatically, according to the IEA, an energy security and research organization based in Paris that serves 28 oil-importing countries, including the U.S.
The report does not address oil prices directly, but analysts do not expect the changing oil-market dynamics to lead to sharply lower oil or gasoline prices. The abundance of oil does, however, greatly reduce the risk of sustained price surges that curtail economic growth.
The chief impetus for the changing world oil picture is the increase in production in the U.S. The U.S. created the world oil market more than a century ago and is the world’s biggest consumer, but domestic production was thought to be in permanent decline. Then drillers, inspired by high prices and armed with improving technology, learned how to produce oil from previously inaccessible rock under several U.S. states.
U.S. production reached 7.4 million barrels per day early this month, 48 percent higher than the average production in 2008 and the highest it’s been since February of 1992. The IEA expects U.S. production to reach 9.1 million barrels per day by 2018. The U.S. last produced that much oil in 1972.
Production also is projected to rise in Canada and elsewhere in the Americas, such as Brazil and Columbia. At the same time, oil demand in the U.S. and other developed nations is expected to fall slightly, a result of improved vehicle efficiency and weak economic growth. That means the U.S. will be able to satisfy most of its own needs with domestic production and oil from neighbors — and that could have geopolitical implications.
“It will affect relationships between countries. Most leaders believe they have to be nice to whoever they buy their oil from,” says Michael Levi, an energy expert at the Council on Foreign Relations and author of a recent book on the U.S. energy boom called “The Power Surge.”
U.S. petroleum imports have fallen by 22 percent since hitting a record in the middle of the past decade.