Market Extra: U.S. will dominate oil and gas by 2025 after historic shale boom, IEA says

The U.S. is on track to become the leader in oil and gas production by 2025, boosted by an unprecedented boom in shale oil that is expected to continue to weigh on oil prices in the near term, the International Energy Agency said on Tuesday.

In its annual World Energy Outlook report, the Paris-based agency said U.S. shale output is expected to have risen by 8 million barrels a day from 2010 to 2025, which would “match the highest sustained period of oil output growth by a single country in the history of oil markets.”

“A remarkable ability to unlock new resources cost-effectively pushes combined United States oil and gas output to a level 50% higher than any other country has ever managed; already a net exporter of gas, the U.S. becomes a net exporter of oil in the late 2020s,” the IEA forecast in its report.

Read: Rebound for U.S. shale oil hasn’t peaked yet — why OPEC should be wary

A rapid rise in U.S. shale output has largely been singled out as the culprit behind the slide in oil prices since the summer of 2014. Crude oil CLZ7, -0.25%  slumped from above $100 a barrel to as low as the mid-$20s, but has now recovered slightly to $56.64 a barrel. Brent oil LCOF8, -0.21%  also traded above $100 in 2014, before dipping to around $27 in February 2016. Brent traded around $63 on Tuesday.

In response to the price collapse, the Organization of the Petroleum Exporting Countries and a group of non-cartel members led by Russia have agreed to cut production until at least the end of March 2018, and the deal is widely expected to be extended.

“Even greater upside for U.S. tight oil (shale) and a more rapid switch to electric cars would keep oil prices lower for longer.”

IEA

However, the U.S. is not part of the output pact and has been able to benefit from the recent rise in prices without having to slash production. The U.S. Energy Information Administration said last week total U.S. oil production — including non-shale — is forecast to average 9.2 million barrels a day in 2017 and 9.9 million barrels a day in 2018. That would be the highest annual U.S. output ever, taking out the previous record of 9.6 million set in 1970.

Read: Oil is escaping from ‘purgatory,’ as supply fears shift from glut to shortage

The IEA said in its annual report that the rising production of both U.S. shale oil and gas is one of the four large-scale shifts in the global energy system, which could keep a lid on prices.

“Even greater upside for U.S. tight oil (shale) and a more rapid switch to electric cars would keep oil prices lower for longer,” the agency said, forecasting oil prices will stay in a range of $50-$70 a barrel until 2040.

“With the United States accounting for 80% of the increase in global oil supply to 2025 and maintaining near-term downward pressure on prices, the world’s consumers are not yet ready to say goodbye to the era of oil,” it added.

Check out: Should oil really be trading above $60 a barrel?

Demand growth is forecast to remain robust until the mid-2020s, but then slow markedly due to a combination of greater efficiency and electric cars. However, other sectors are likely to keep a steady demand for oil over the coming decades, such as oil to produce petrochemicals and for use in aviation and shipping.

“Once U.S. tight oil plateaus in the late 2020s and non-OPEC production as a whole falls back, the market becomes increasingly reliant on the Middle East to balance the market,” the IEA said.

“There is a continued large-scale need for investment to develop a total of 670 billion barrels of new resources to 2040, mostly to make up for declines at existing fields rather than to meet the increase in demand.”

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