LONDON -- Without exporting a drop of oil or a whiff of gas, the energy revolution in the United States is redrawing the global energy map and reshaping world geopolitics. If anyone doubted the impact of U.S. unconventional gas and oil over the last half decade, the International Energy Agency put those doubts to rest in its latest annual forecast.
The United States will overtake Saudi Arabia as the largest oil producer in 2017 and will surpass Russia as the largest natural gas producer in 2015, says the IEA's World Energy Outlook. It predicts U.S. self-sufficiency within 25 years. With the development of light tight oil and other unconventionals, North America will become a net oil exporter by 2030.
The implications are many. Cheap gas already is driving coal out of business in America's power sector. The United States is dumping coal in Europe and Japan, where gas prices are five to eight times higher. In Europe, coal is displacing gas so quickly that it won't be until 2020 that the continent consumes as much gas as it did in 2010, the IEA said.
Affordable energy is encouraging a revival of U.S. industry. "There is a shift in competitiveness," said IEA Executive Director Maria van der Hoeven. If production forecasts are borne out, "it will have a major impact on the return of industry to United States," she said, presenting the annual review here yesterday.
U.S. abundance is reshaping the way global gas contracts are constructed, currently linked to oil prices. Norway was the first to offer flexibility. It was followed this year by Russia's Gazprom, which loosened its rigid indexation policy. In July, the German power company E.ON, Gazprom's biggest export customer, renegotiated its long-term purchases, said the outlook, which is considered an authoritative analysis of energy trends.
Trade routes for oil and gas are migrating eastward as the United States cuts imports, China and India grow hungrier for energy, and Iraq steps up production of both oil and gas for Asian markets. The changing center of gravity raises questions about whether the United States will continue to secure the world's most critical sea lanes and whether tensions might ratchet up further among China and its Asian rivals in the South China Sea.
"The foundations of the global energy system are shifting," said Fatih Birol, the IEA's chief economist. Recent developments have changed "many things we thought were keystones of the energy sector, and there is a new landscape."
If America is not yet selling gas, it is exporting the technology to produce it, prompting China and other countries to develop their own resources from horizontal drilling and hydraulic fracturing. Unconventional gas -- mostly from China, North America and Australia -- will account for more than half the growth in global production, says the tomelike report of more than 600 pages.
Yet the prospects for shale remain uncertain, the IEA said. Fears of air and water contamination have raised public opposition and regulatory caution. Water shortages may constrain new drilling since huge quantities are needed, along with sand and chemicals, to crack open shale rock and free hydrocarbons. There remains a shortage of pipelines and expertise.
Rise of the 'hidden fuel'
Despite the resurgence of U.S. production of relatively clean fuel, "the world is still failing to put the global energy system onto a more sustainable path," the report says.
Subsidies for fossil fuels rose 30 percent last year to $523 billion, partly because some countries, including those in the Middle East that underwent the upheavals of the "Arab spring," scrapped subsidy reforms.
One mechanism for correcting the negative glide path is energy efficiency. More rational use of energy in transportation, buildings and power generation could translate into an 18 percent energy savings.
Van der Hoeven called efficiency the "hidden fuel: You can't sell it, you can't buy it and you can't put it in the tank." But it is the key to cost-cutting, to energy security and to lowering climate-changing carbon emissions.
The United States, Japan, Europe and China all have announced major efficiency initiatives. New fuel standards for the next generation of vehicles will contribute to the favorable U.S. oil balance, Birol said, and China's five-year plan stresses improved energy intensity, meaning greater production for less fuel.
Renewable energies are continuing to grow and will rival coal as the world's main fuel for electricity by 2035. Subsidies for wind, solar, hydropower and other renewables rose 24 percent to $88 billion last year, and will reach $240 billion by 2035 -- less than half the level of fossil fuel subsidies today.
But carbon emissions are maintaining their upward trend, growing last year by 1 gigaton, the largest increase in history, Birol said.
The IEA has calculated that without a dramatic shift from fossil fuels, the world will be locked into an emissions trajectory that will push global warming beyond a rise of 2 degrees Celsius, or 3.8 degrees Fahrenheit, above preindustrial levels, the generally accepted danger point.
That threshold of perilous carbon emissions will be crossed in 2017, the IEA says, but that date could be pushed back five years by deploying energy efficiency measures "without changing our lifestyle," Birol said.
One complicating factor is growing skittishness around using nuclear power. The IEA lowered by 10 percent its estimate of nuclear energy following the Fukushima Daiichi reactor disaster in Japan and subsequent policy decisions by Japan, Germany, Switzerland and France to move away from nuclear power.
The scale-back will make it harder to reach emissions goals. "To be honest with you, we are worried," Birol said. "In the absence of nuclear energy, it will be completely impossible to reach the 2 degrees."
The environmental group Greenpeace applauded the IEA's focus on energy efficiency.
"Governments must heed the IEA's call to remove barriers to energy saving technologies," said campaigner Sven Teske. "Without increased ambition on renewables, the IEA shows that almost 700 new, dirty coal-fired power plants could be developed by 2025, a disaster for the climate and for precious water resources."
Like what you see?
We thought you might.
Start a free trial now.