Hook, Line And Sinker

I have traveled down this road many, many times before, so you will have to excuse my nonchalant attitude. On October 25 I wrote a post called The United States Is The New Saudi Arabia!  Now, only a few weeks after that sarcastic headline, the International Energy Agency (IEA) has said ... wait for it ... the United States is the new Saudi Arabia!

Here's the Reuters version, called U.S. to overtake Saudi as top oil producer - IEA.

The United States will overtake Saudi Arabia and Russia as the world's top oil producer by 2017, the West's energy agency said on Monday, predicting Washington will come very close to achieving a previously unthinkable energy self-sufficiency.

The International Energy Agency (IEA) said it saw a continued fall in U.S. oil imports with North America becoming a net oil exporter by around 2030 and the United States becoming almost self-sufficient in energy by 2035.

"The United States, which currently imports around 20 percent of its total energy needs, becomes all but self-sufficient in net terms - a dramatic reversal of the trend seen in most other energy importing countries," it said...

Natural gas, too.

IEA Chief Economist Fatih Birol told a news conference in London he believed the United States would overtake Russia as the biggest gas producer by a significant margin by 2015. By 2017, it would become the world's largest oil producer, he said...

Back to "oil", which includes (at least) natural gas liquids and God Only Knows what else.

Birol said he realised how optimistic the IEA forecasts were given that the shale oil boom was a relatively new phenomenon.

"Light, tight oil resources are poorly known ... If no new resources are discovered (after 2020) and plus, if the prices are not as high as today, then we may see Saudi Arabia coming back and being the first producer again," he said.

The IEA said it saw U.S. oil production rising to 10 million barrels per day (bpd) by 2015 and 11.1 million bpd in 2020 before slipping to 9.2 million bpd by 2035.

Saudi Arabian oil output would be 10.9 million bpd by 2015, the IEA said, 10.6 million bpd in 2020 but would rise to 12.3 million bpd by 2035.

The IEA included this graph in the press kit for the 2012 World Energy Outlook.

Some reports on the IEA's pronouncement, those coming from outside the United States, took a more sober approach. This text is from the Financial Times' US set to become biggest oil producer.

However, those projections are based on an extrapolation of the dramatic growth in shale oil production in recent years, which some analysts see as implausible, or at least uncertain.

The key to the new US oil boom is the widespread use of techniques such as hydraulic fracturing, or fracking, and horizontal drilling that have tapped huge hydrocarbon resources previously thought unrecoverable. The boom started in natural gas, but has in recent years switched to oil, produced in ever larger quantities in places such as North Dakota’s Bakken Shale and Eagle Ford in South Texas.

The decline rate of shale oil wells is very steep, however. A year after coming on stream, production has dropped to about 20-40 per cent of its original level, according to analysts at Barclays Capital.

That means producers have to keep drilling to sustain output, and there is still uncertainty about how much new wells will produce. The best prospects will have been developed first, meaning that subsequent drilling will take place in less favourable geology. It will take years to show how serious that deterioration is.

[My note: Subsequent to my reading it, the Financial Times rewrote its story and removed this text. Luckily, I had saved a copy.]

Ah, there's the rub. The best prospects are drilled first. Producers have to keep drilling to sustain output. This quote is from the EIA's October Short-Term Energy Outlook. (The U.S-based EIA is not the Paris-based IEA.)

U.S. Liquid Fuels Supply and Imports. Domestic crude oil production increased by an estimated  180 thousand bbl/d (3.2 percent) to 5.7 million bbl/d in 2011. Forecast crude oil production increases to 6.3 million bbl/d in 2012 with lower-48 (excluding the federal Gulf of Mexico) crude oil production growing by 780 thousand bbl/d, primarily from the Bakken, Permian basin, and Eagle Ford producing areas. Hurricane Isaac in the Gulf of Mexico led to U.S. crude oil production shut-ins averaging 220 thousand bbl/d in August and 200 thousand bbl/d in September. Total crude oil output rises a further 530 thousand bbl/d in 2013.

I also don't believe this EIA forecast. Keep those 3-letter acronyms coming!

The number of onshore oil-directed drilling rigs reported by Baker Hughes has increased from 777 at the beginning of 2011 to 1,191 at the start of 2012, and to 1,398 as of October 5, 2012.

To achieve a modest 3.2% increase in U.S. crude oil output in 2011, and a further addition of (perhaps) 500,000 daily barrels in 2012, the number of active, on-shore drilling rigs nearly doubled from 777 at the beginning of 2011 to 1,398 in early October, 2012. It's a miracle!!!

And now the IEA has upped the ante considerably (graph above), based on an extrapolation of a suspect trend which many oil analysts (including yours truly) find implausible. On the contrary, a former IEA oil analyst named Olivier Rech told the French newspaper Le Monde that—

... in my view, [the world] will have to face a decline of the production of all forms of liquid fuels somewhere between 2015 to 2020. This decline will not necessarily be rapid, however, but it will be a decline, that much seems clear.

I posted about this story on January 6, 2012. I wonder what Olivier thinks of this latest IEA prognostication.

Here in the United States, people are starved for good news. They will grasp at any proffered straw to get it. Any story which asserts that the Empire is not in decline will do. The IEA has indulged those who would embrace a comforting Fantasy rather than deal with the discomfiting Reality.

I got the idea for the title of this post from the Daily Ticker's story U.S. to Pass Saudi Arabia in Energy Production, IEA Says: Huge Foreign Policy, Economic Implications. In the video below, Aaron Task and Henry Blodget seem to swallow this IEA nonsense hook, line and sinker.

From a journalistic point of view, that's irresponsible, but the bigger scam is that there is virtually no chance that the IEA's fairy tale about America's coming Oil Boom is correct. I like Henry and Aaron. They often do a good job of honing in on key stories and reporting them honestly (for example, income & wealth inequality). But they didn't get it right this time. This time they were played for suckers.

 

Comments

[Dashui]

I think it's all about getting permission to export wti
on the world market. A quick buck for oil companies.

[Oliver]

Right as always, Dave.

One large aspect of the American economy dictates that the US can never become self-sufficient in energy resources, at least as a matter of public policy. And that is the military-security industry.

The US military machine has always operated on the basis of imperialist control of foreign lands, primarily those with fossil fuel reservoirs. It is unthinkable that the "defense" sector will let go of this raison d'etre, which enables them to continuously seek and obtain a colossal chunk of US government spending via the mantra of constant war (Orwellian definition).

At great cost - at a level guaranteed to line the pockets of the plutocrats engaged in this business - weapons must be developed and armaments must be used up and replaced, and the only pretext that allows this gobbling of taxpayers' money to continue unmoderated is the whipping-up of homeland security fears, which itself is a thinly veiled cover story for the control of other countries' natural resources.

So whatever BS put out by the IEA or any other myopic body, you can bet your last fake dollar that the US powers-that-be will never allow the concept of energy self-sufficiency to take root at foreign policy level. And the only way US forces will return to US shores is when 'Rome' (i.e. DC) has crumbled in its final death rattle as an empire.

[Dave Cohen]

I have added the following note to this post.

Subsequent to my reading it, the Financial Times rewrote its story and removed [the text I quoted]. Luckily, I had saved a copy.

Here's the new, sanitized version.

http://www.ft.com/intl/cms/s/0/8c2bcdf2-2c9f-11e2-9211-00144feabdc0.html#axzz2C25SY9H5

-- Dave

[Oliver]

Congratulations Dave - you've caught out the British media pandering to market interests, who continually plant false stories that ensure the more gullible retail investors lose their shirts to institutional shareholders. And those imbecilic "journalists" buy it - hook, line and stinker (sic).

[Ken Barrows]

And Disco Stu said to Homer Simpson, "If you look at disco sales for 1977 and 1978, ... whoa!

[Alexander Ač]

What is interesting, that one should not be "concerned" about energy optimists, or energy pessimists (of course, both are wrong), but what really concerns me, are the energy ignorants (count 99,99 % of population) - these are truly dangerous people. (the same for climate, BTW)

Alex

[Alexander Ač]

Looks like a very new book published few days ago, reviewers are offered a copy:

Bankrupting Nature: http://www.routledge.com/books/details/9780415539692/

Alex