Hark! The American Energy Revolution…and What to Watch For

The International Energy Agency (IEA) published its new World Energy Outlook on Monday,
projecting the United States to become the world’s largest oil producer as
early as 2020, overtaking
Saudi Arabia and Russia for the top spot. According to the IEA’s analysis,
the United States may even become a net
exporter of oil by 2035. The American energy revolution is driven in part by
technological developments that have bolstered shale gas and tight oil
production, as well as decreased demand for oil due to higher fuel efficiency
standards in U.S. vehicles, according to the IEA.

The analysis should be taken with a grain of salt, as it is
difficult to project as far forward as 2035 with any meaningful amount of
certainty. For example, some of the tight oil projects in the United States may
depend
on a global price of $70 a barrel in order to remain economically viable.
Some analysts are projecting prices to fall as
low as $50 a barrel, which could drive developers away from investing in
projects that require $70 a barrel to breakeven, upsetting some of the oil
production estimates.

Nevertheless, it is possible to make some reasonable
assumptions about what the American energy revolution could mean for U.S.
policymakers charged with navigating this complex and ever-changing landscape. Here
are a couple of things to watch for, in no particular order:

The pace of tight oil
production will continue to be dynamic. U.S. tight oil production may speed up or slow down
depending on the U.S. energy market. There is some reason to believe that tight
oil production is moving faster in the United States than some expected because
of depressed natural gas prices. Low natural gas prices have contributed to poor
returns on investment for some shale gas producers, with some producers choosing
to develop tight oil deposits instead of expanding shale gas production in
order to earn a profit. If natural gas prices rebound in the near term though, tight
oil production could slow down as development shifts back to a more profitable natural
gas sector.

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