Surge Seen in U.S. Oil Output, Lowering Gasoline Prices

Source: By CLIFFORD KRAUSS and STANLEY REED, New York Times • Posted: Thursday, December 19, 2013

Bay Ismoyo/Agence France-Presse — Getty Images

A barge of coal in Indonesia. Indonesia is a major exporter of coal, which many developing countries use to generate electricity.

HOUSTON — Domestic oil production will continue to soar for years to come, the Energy Department predicted on Monday, scaling to levels not seen in nearly half a century by 2016.

The annual outlook by the department’s Energy Information Administration was cited by experts as confirmation that the United States was well on its way — far faster than anticipated even a year ago — to achieving virtual energy independence.

The report predicted that the increase in United States production would contribute to a decline in the world oil benchmark price over the next few years to $92 a barrel in 2017 from a 2012 average of $112 a barrel, which should translate into lower prices at the pump for consumers.

It projected that domestic oil production would increase by an average of 800,000 barrels a day annually through 2016, nearly reaching the 1970 historic high of 9.6 million barrels a day. The increase in domestic oil production should bring the imported share of oil supplies down o 25 percent in 2016 from the current 37 percent t. Just a few years ago, the country imported half of its oil supplies.

“The E.I.A. report confirms that the United States really is experiencing an energy revolution,” said Daniel Yergin, the energy historian and author of “The Quest: Energy, Security, and the Remaking of the Modern World.”

Oil production in North Dakota and Texas is expanding so rapidly that a glut of certain higher grades of oil has already developed in the Midwest and Gulf States. That glut is beginning to stir a debate in Washington over whether the Obama administration should reverse a policy of banning most exports of oil that goes back to the 1970s.

Energy Secretary Ernest Moniz last week suggested to reporters at an energy conference in New York that the time may have come to reassess a policy that was enacted when the American economy was put in jeopardy by oil embargoes from Arab states.

Under current law, the Commerce Department grants licenses for exports, but Mr. Moniz said that the Energy Department, which normally directs energy policy, would be willing to conduct the technical analysis that would help shape a new policy.

Today, American dependence on imported oil is declining month by month because of the expanded domestic production. And its exports, which are sent mostly to Canada, have increased substantially over the last two years, though they remain small.

Oil companies have urged the administration to allow the exports of the higher-grade types of oil now being produced, saying that much American refining capacity is suited for lower-quality crudes imported from Mexico, Venezuela and the Middle East.

The report projects increased exports of natural gas over the next few years. This represents a drastic change from just a few years ago, when the United States was planning to import more natural gas.

The federal agency also concluded that natural gas would overtake coal as the most important source of domestic electric power generation in the years ahead. It predicted that by 2040, natural gas would account for 35 percent of total generation, while coal would account for 32 percent. At present, coal provides about 40 percent of electricity, while natural gas accounts for about 30 percent of electricity generation.

Energy experts say it is unlikely the United States will ever be totally self-sufficient for its oil supplies. But expanding imports from Canada and other Western Hemisphere producers, coupled with growing domestic production and increasingly fuel efficient transportation, should mean declining dependence on countries that are either unfriendly or unstable.

According to a separate report by the International Energy Agency, also released Monday, global consumption of coal, a major source of the greenhouse gases blamed for rising global temperatures and other pollutants, is likely to continue to grow at “a relentless pace” through 2018.

The report, released in Paris, underscored the problem facing the world with regard to coal. Because coal is relatively inexpensive and abundant, it remains the dominant fuel for the generation of electricity, especially in developing countries like China. Yet burning coal is also highly polluting, both in producing smog and greenhouse gases that have been linked by many scientists to climate change.

“Like it or not, coal is here to stay for a long time to come,” Maria van der Hoeven, the agency’s executive director, said in a conference call with reporters on Monday.

The agency said that the consumption of coal for electricity generation and heat accounted for more than three-fifths of the rise in global carbon dioxide emissions since 2000. Coal use increased by an average of 3.4 percent per year from 2007 to 2012, faster than the increase in either oil or natural gas. Consumption through 2018 is expected to increase by 2.3 percent a year, the I.E.A. said.

The agency, which represents 28 member countries, said that technology existed to make coal-fired power plants less polluting, but that a large proportion of the installations being built in emerging markets like India and Indonesia were inefficient. Using efficient technologies at these Asian plants would reduce carbon dioxide emissions by as much as all the wind turbines in Europe, the agency said.

In addition, progress has stalled on carbon capture and storage, a once-promising technology that strips out greenhouse gases from the emissions of power plants and other polluters and injects them into abandoned natural gas wells and other storage locations, the I.E.A. said.

Clifford Krauss reported from Houston and Stanley Reed from London.