By Brai Odion-Esene

WASHINGTON (MNI) – The sharp growth in oil and natural gas production in
the United States via unconventional techniques will mean oil imports to the
world’s largest consumer will drop even further, with greater supply in global
oil markets and lower prices, an analyst with global information firm IHS said
Tuesday

“It is transformative,” John Larson, IHS vice president in charge of public
sector consulting told reporters during a conference call to unveil a new study
— ‘America’s New Energy Future: The Unconventional Oil and Gas Revolution and
the Economy’.

“There’s tremendous opportunities for the U.S. to step into the global LNG
(liquefied natural gas) market, potentially … . It clearly does create, I
think, some interesting geopolitical and global supply issue opportunities,” he
said.

From 1970 to 2008, U.S. domestic oil production had fallen from about 9.6
million barrels per day to about 5 million barrels, with the conventional wisdom
at the time being that the U.S. oil output would be in a continual decline.

However, Larson said unconventional oil — which leverage technologies
developed for tapping unconventional natural gas resources — has turned such
assumptions on their head, with production of unconventional oil currently north
of 2 million barrels per day representing about 30% of total U.S. crude output.

“By the end of the decade, tight oil will rise to about 4.4 million barrels
a day and by 2035 it will be 4.5 million barrels a day,” he said. “So it really
is a remarkable change.”

Pumping more oil also changes the import picture for the United States,
with the IHS report estimating $70 billion in import offsets for 2012.

With regard to natural gas, Larson said production has risen by close to
25% since 2008 — from 52 billion cubic feet per day to 65 bcf. “And
unconventional gas accounts for about 65% of that total volume being produced
today,” he said.

Shale gas is leading the way, he continued, making up 37% of U.S. natural
gas output. The IHS expectation is that natural gas production by the end of the
decade will reach about 80 bcf per day, “with about 75% coming from
unconventionals.”

“It’s fundamentally shifted our dialogue,” he said, and “now the dialogue
around LNG (liquefied natural gas) is about exports and the potential
opportunities for exports on the world market,” Larson said.

Asked by MNI what this explosion in U.S. oil and natural gas production
will mean for the global energy markets, Larson noted that U.S. demand peaked in
2005 and has remained level or on a decline since.

Pumping more oil from unconventional sources means North America will
become less dependent on energy from the rest of the world, he said.

Using the sanctions on Iran oil exports as an example, Larson said the
“tight oil production” in the United States has essentially offset 80% of oil
supply from Iran.

That, he said, is an example of a contraction in supply due to sanctions —
and the gap that causes in the oil market has been “virtually closed” through
unconventional oil production alone.

“So it clearly does create a situation … globally, to see some additional
supply as North America lessens its global demand. And that should allow for
greater flexibility in the broader global economy,” Larson said.

“Any time there’s opportunity to create greater stability and lower prices
around energy, creates a greater wealth for the entire world as the global
economy can flourish,” he added.

The IHS report also highlighted the benefits expanded oil and natural gas
exploration will have for the U.S. economy, forecasting nearly $5.1 trillion in
capital expenditures ($2.1 trillion in the oil sector, $3 trillion in the gas
sector) will take place between 2012 and 2035 across the entire upstream
unconventional oil and gas activity sectors.

“Employment in the entire upstream unconventional oil and gas sector on a
direct, indirect, and induced basis will support nearly 1.8 million jobs in
2012, 2.5 million jobs in 2015, 3 million jobs in 2020, and nearly 3.5 million
jobs in 2035,” IHS said.

In addition, the report said unconventional energy activity will contribute
$237 billion in value-added contributions to GDP in 2012, a number that will
increase to $475 billion annually in 2035.

IHA said unconventional oil and gas activity will generate more than $61
billion in federal and state government revenues in 2012 and increase to $91
billion in 2015 and $111 billion in 2020. By the last year of the forecast
period, in 2035, government revenues will increase to more than $124 billion.

** MNI Washington Bureau: 202-371-2121 **

–email: besene@mni-news.com

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