Cresting this milestone is powered not just by cheap natural gas. It is equally weighted to our success in cutting use and growing renewables. It comes from good government policy. It comes from great planning and significant consumer changes as well.
We've come along way in building the right blue print for grids, transportation, expansion of biofuels and alternative fuels. This helps balance trade and improve domestic production/jobs. The big question is around gas as a bridge fuel or a long-term solution to reducing emissions?
Q&A: British expert expects U.S. to be self-sufficient in energy
By David Hunn
He helped set interest rates and monetary policy through the 2008 financial crisis.
"I just thought, 'Well, let's go explore what the rest of the world could look like, just for the fun of trying something different,' " Dale told the Chronicle recently.
Dale manages BP's global economics team and produces the annual Statistical Review of World Energy and Global Energy Outlook. And Dale think the U.S. is on the verge of becoming energy self-sufficient - meaning it will soon produce the same amount of energy it consumes, even if it still imports some fuels and exports others.
Energy
A: What's really striking is just the extent to which the U.S. shale revolution has revolutionized the U.S. economy. It is obvious in the amount of jobs it's created, the amount of GDP and wealth it's created. But it's also really shifted the energy battle. So this year, the U.S. was the world's largest oil producer, for the second consecutive year, and oil imports were at their lowest since the mid-1980s. Exactly the same story for gas. Last year, the U.S. produced over 90 percent of the energy it needed to consume. If you go back 10 years, it was closer to two-thirds.
Project forward five years or so to early 2020 and the U.S. becomes self-sufficient in energy. If somebody walked into your offices 10 years ago and said, "I think in my lifetime, the U.S. will be self-sufficient in energy," you would have said, "Why don't you pop back to London and come back when you know your numbers a bit better." I mean this is just absolutely game-changing.
In any economic model I know, if you become an awful lot more self-sufficient at producing something you used to have to import, the impact on the exchange rate is very clear - which is the exchange rate goes up.
A: The main thing is anything which stopped U.S. tight oil and U.S. shale gas being able to fulfill its potential. The resource base and the technology to extract it is clear.
It may be that some people are less willing to put money into U.S. oil this time. That may act as a sort of bottleneck. My hunch is that may delay progress, but won't fundamentally stop it. Ultimately, capital will flow where there's returns. Perhaps a more fundamental thing is if you saw increased regulation which somehow prevented fracking from developing to its full extent - as result the U.S. would not be able to achieve its full potential. That would be the most obvious one.
Q: What does the future look like for technology in energy?
A: In terms of technology, it's everywhere and it affects everything. A couple of examples: Renewable energy is growing astonishingly quickly. Wind and solar power grew by 15 percent last year. Perhaps the most astonishing one is solar power. Solar power increased 60-fold over the last 10 years. It's doubled its capacity every 20 months on average over the last 10 years. It's just astonishing.
Another example of technological gains is in shale. Everybody always knew this oil and gas was there, it just couldn't be economically recovered. Technology's changed that. The productivity gains in U.S. tight oil are mind-boggling. If I do it in terms of initial production per month of a rig, they've achieved productivity gains of over 30 percent a year every year for the last six or seven years - 30 percent. U.S. macro economy is looking at about one-and-a-half? This is 30.
Q: How does the increase in productivity affect jobs?
A: The impact of this will be far greater than the actual number of people directly employed. Those people are generating wealth, and that wealth then spreads out, in many different ways. There are supply chains, they go out and buy food, they buy houses.
Q: But doesn't increased efficiency mean fewer jobs?
A: No. Much of these efficiency gains were over six or seven years, when more and more rigs were operating, employing more and more people. So this is not a classic downsizing, using technology to displace workers. This was, as I become more and more productive, some of those parts of oil, which before were not economically recoverable because I couldn't afford to get there, become economically recoverable, so I can now employ a new rig to get at it. And because the rig is so much more efficient, I can now drill in places I couldn't drill before. There's a complementarity here between these productivity gains and just more output.
Q: But the slump in oil production has lagged the loss of jobs, which means there must be some efficiency gains?
A: What you saw is rigs and employment have come off far more rapidly than output. And some of that is a productivity gain. Some of that is also a sort of natural high-grading. So what you had is you had a lot of rigs operating. Some of those rigs operating were in far less productive spots than others. When oil is $100, fine, I can make money almost everywhere. As the oil price falls back down, I have to sort of converge onto the real sweet spots. As the result of which, a lot of those rigs, there was a lot of activity, but they weren't generating much, because they were in relatively unproductive areas. In Britain, we call this a batting average, if you like cricket; you take out some of these, the average goes up. I always worry about cricket analogies.
Q: Are the Saudis angling for more market share?
A: My personal view is there was lots of confusion about the Saudi behavior. What the Saudis had done made perfect sense. It's just that quite a few economists were a little bit lazy in the way they thought about it.
In 2008 and 2009, and in 1997 and '98, OPEC knew that demand would come back again. So they said OK, I can cut supply today because I know I can bring it back tomorrow. It's a temporary shock.
This was more like what we saw in the mid-1980s, and a big chunk of that was due to supply. In the mid-1980s it was North Sea oil and Alaska coming on stream. This time it was tight oil. In that world, you can't fight. That sort of supply is not going to go away. So if you want to give up market share, you just give it up for the future.
Q: But do they want more market share?
A: I wouldn't want to speculate on what OPEC do and don't want. I think up until now, the way they've behaved is not in any way different from the way they've always behaved in the past. What is fascinating about Saudi Arabia at the moment is how they want to transform the oil economy - become less dependent on oil.
Q: With natural gas and renewables all rising, what's the future of oil?
A: My central view is we'll see oil demand increase by about 20 million barrels a day over the next 20 years, so a million-barrels-a-day growth. That takes a market which is close to 95 million a day to like 115 million barrels a day.
Who's going to buy all that oil? Where's it all going? Essentially it's strong growth in emerging markets in China and India. As those economies grow, many hundreds of millions of people are lifted out of low income status into middle income status. We know from history and wealths of data, as people move from low income to middle income, they start buying motor cars.
We think the number of vehicles outside of (Western nations) will roughly triple over the next 20 years, from roughly half a billion vehicles on the planet today to 1.5 billion vehicles.
The big uncertainty is how quickly electric vehicles penetrate the market. If new technology develops more quickly and costs come down more sharply, or if social pressures shift and people think it's cooler to drive around in an electric car than they do an internal combustion engine, this could happen more quickly.
The underlying demand profile and prospects for oil look solid. Hundreds of millions of people are going to be driving cars in the future who don't currently own a car. The main uncertainty is how many of those are gasoline based cars rather than electric ones.
You can't think about the energy without thinking about the economics, but also without thinking about the technology. That's why it's such a fascinating cocktail of issues.
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