Edinburgh/Houston/Singapore, 23rd October 2014 – The US will achieve energy independence by 2025, which will mark the first time since 1952 that the US will export more energy than it imports, according to an integrated outlook by Wood Mackenzie’s Global Trends Service.

Wood Mackenzie’s outlook underscores that higher production and lower demand are the forces driving US energy independence. “A country can achieve energy independence through two channels, it can either produce more or consume less, and the US is doing both,” explains Mr. James Brick Senior Analyst. “Over the last seven years, the US has added 3 million barrels per day of tight oil and 27.5 billion cubic feet per day of shale gas to the global energy mix, a spectacular 42% increase in US oil and gas production.” Meanwhile, oil demand is decreasing primarily due to efficiency gains in the transport sector.

Wood Mackenzie indicates that the uncertainties facing the US energy market fall into two broad categories. Those that make it more likely the US will achieve energy independence before 2025, and those that will delay it. The key uncertainties that can speed up US energy independence include a lifting of the US crude oil export ban, higher tight oil production and lower demand in the transport sector:

By lifting the crude oil export ban, Wood Mackenzie says the price realized by US upstream producers would increase as they would be able to access higher priced international markets. If crude oil exports resulted in US producers receiving an additional US$ 5 per barrel, production could increase by 350-450 thousand barrels per day. In order to produce this additional oil, an investment of around US$ 5 billion would be needed.

“Not all companies would actually benefit from lifting the crude oil export ban,” says Mr. Brick. “It’s likely that upstream producers would generally benefit the most via increased volumes and higher prices. Oil field service companies and rig manufactures would also benefit from the additional investment.”

Even if the crude oil export ban is not lifted, the US could produce more tight oil than is currently anticipated. Mr. Brick explains: “Tight oil and shale gas plays are still evolving and there are many opportunities for the application of new production techniques. Production could be up to 3.0 million barrels per day higher than our view of 10.3 million barrels per day by 2030 as a result of the application of technologies such as enhanced oil recovery (EOR) and refracturing. EOR techniques currently being tested are especially promising and early indicators suggest recovery rates could double.”

While Wood Mackenzie forecasts the US vehicle fleet to become over 40% more efficient by 2030, there is still potential for efficiency to improve faster, or for a more pronounced shift to cars away from less efficient light trucks and SUVs. Any improvement in vehicle efficiency or lower vehicle miles travelled per capita would reduce US oil demand and, consequently, net oil imports.

Furthermore, the three key uncertainties that would stall US energy independence include delays in developing critical export facilities, environmental regulations and energy policies that would encourage more gas to be used in the power sector.

“If local or national regulation that discourages fracking is passed, oil and gas production will be lower,” says Mr. Brick. “Also, if US energy policy is enacted to reduce carbon dioxide emissions, it is likely gas used by the power sector will increase.

Wood Mackenzie concludes that the investments driving the US towards energy independence will have substantial direct and indirect benefits for the US economy, whereas any direct benefits from energy independence in itself are more muted. Furthermore, US energy independence will not isolate the US energy markets from international risk but it will change how these risks are considered.

“Irrespective of the timing of independence, the US has started its transformation from energy consuming giant to prominent exporter,” concludes Mr. Brick, “With this role shift comes obvious economic benefits but also shifting risks and new responsibilities.”
Source: Wood Mackenzie