SocialismToday           Socialist Party magazine

Issue 166 March 2013

US fracks and fiction

THE USA will become the world’s top oil producer in five years and a net oil exporter by 2030, the New York Times headlined last year in a front-page story (12 November). Right-wing hawks envisage a new scenario in which the US military intervenes worldwide unimpeded by fears of a dependency on oil imports, while doves hope for a less aggressive US stance in the Middle East. The truth beneath the media reports of the latest review by the Paris-based International Energy Agency (IEA), however, is somewhat different. The IEA envisages a continuing decline in US consumption of oil until, by 2020, its imports of crude oil will exceed its exports of refined products by only three million barrels a day (3mbd).

The press launch of the IEA’s latest outlook on the world’s future oil and gas production appeared to challenge recent gloomy scientific predictions of the end of cheap oil. Despite the costly wars in the Middle East waged by the US, aimed at taking control of the huge Iraqi oil reserves, the price of oil remained stubbornly high in 2012. Predictions of post-war oil prices forced down to $10 a barrel have long faded. At the time of writing, oil is $118, and averaged some $11 more in 2012 than even in 2008, when prices momentarily hit the roof. The IEA report envisages no decline in the price of oil. Costly energy remains a drag on industrial recovery, and high petrol and energy prices continue to cripple the consumer.

Inside the USA, however, the story is slightly different, although petrol prices remain very high. As a result of the rise in oil production from shale rock – ‘tight oil’, as it is called – through a process called fracking, the US now has a glut of oil. Fracking hit the spotlight when Youtube videos showed people setting their tap water alight. Escaping gas, together with carcinogens from the fracking process, had entered the groundwater. The reviled process of fracking and the tragic stories of environmental destruction surrounding it have already received the Hollywood treatment in Promised Land, featuring Matt Damon.

While enforcing free-trade policies on the rest of the world, the US government has generally not allowed the export of its own crude oil (except for a small amount to refineries in Canada), and the USA’s ‘oil exports’ are, in fact, refined products, almost entirely petrol. Yet, despite the glut, oil in the USA was priced only slightly lower than it was in 2008 and only around $20 lower per barrel than in the rest of the world, due in a large part to the high cost of fracking.

The IEA’s press launch has given rise to an effluence of right-wing media stories suggesting that fracking would bring about a resurgent USA. The US currently consumes 19mbd of oil, but only produces roughly a third of that itself. Some commentators suggest that fracking will grow rapidly to make up the difference between US production and consumption. Yet fracking accounted for at most 1mbd in December 2012. It may rise to 2mbd – even the most optimistic studies predict a maximum of only 3mbd.

Although US imports of oil are falling, the IEA does not envisage an end to US reliance on crude oil imports. Peaking in 1970, oil production in the US has halved since then, falling to a 2007 low of 5mbd. The significant increase in the price of oil has halted this decline, as old wells are restarted to pump the last dregs of oil, but the IEA projects a continuing long-term decline in this ‘conventional’ oil production.

However, in the last five years the US has managed a significant increase in ‘all liquids’. This is based entirely on ‘unconventional’ methods, such as fracking for tight oil, mandatory biofuels production, and the inclusion in the figures of natural gas liquids (such as butane and propane, sold in compressed liquid form), as well as some ‘processing gains’ from refining the very heavy crudes, such as Canadian tar sands. With these additions, the USA’s production of 9.5mbd of ‘all liquids’ has already overtaken Saudi Arabian crude oil production, which has fallen by 1mbd to 9mbd since the IEA report came out.

The IEA sees US production peaking in 2020 as tight-oil production reaches almost 3mbd. The USA’s Energy Information Administration (EIA) projects the peak to be 2017, with just over 2mbd of tight oil. After then, both the IEA and EIA expect US oil production to decline. Meanwhile, crude oil production in Alaska and Mexico continues to fall. In fact, oil production from non-OPEC countries excluding the USA has declined for the last two years, falling 1.5mbd below the plateau reached in 2004. And, with such small returns from fracking at such a huge cost, it will be no game-changer – even if the giant western Siberian shale formations and others are tapped (and surely they will be).

The IEA’s actual projections (as opposed to its press publicity) are highly tentative. There is no suggestion that the US will become a net exporter of crude oil in 2030. What is most striking is that the IEA’s World Energy Outlook 2012 projects a continuous, long-term decline in the USA’s consumption of oil. This decline causes US net imports of all liquids (eg imports of oil minus exports of petrol) to fall to just 3mbd by 2020. Hawks have extended this projection to speculate that the USA will become a net exporter of oil by 2030 or 2035. In reality, even in this scenario, the USA would continue to import crude oil and export refined products, such as petrol, and will not be self-sufficient in energy.

Set up by western imperialism as a response to the formation of the Middle East’s OPEC cartel, the IEA’s true outlook, hidden beneath rhetoric for the benefit of its primary paymasters (above all, the USA), is bleak. Emphatically denying that its outlook is even a forecast, let alone an incontrovertible truth, the IEA suggests that the USA will soon become the world’s top oil producer. This is based on a continuous fall in US consumption of oil, a massive increase in fracking activity, and a failure of any growth in oil production in Russia or Saudi Arabia.

Unconventional oils, either extracted by fracking or from tar sands in Canada and Venezuela, are huge operations, destroying the environment wherever they take root. The old conventional oil wells in the US typically produced at a rate of 40,000 barrels of oil a day (bpd). This means that just 17 conventional wells could produce more than the entire operation today in the USA’s part of the Bakken shale formation (in Montana and North Dakota), and they could run for decades. In November 2012, 4,910 wells in the Bakken produced 669,091 bpd. Next year China is looking for an extra 644,000 bpd, almost the entire daily Bakken output built up over five years of hectic fracking activity. Production from tight-oil wells typically declines to just one-fifth of peak in 24 months, so the huge effort of fracking becomes increasingly a process of running just to stay still.

While some commentators are cautious, others find the IEA’s scenario untenable. One study suggests that roughly half of the decline in US oil consumption is linked directly to a fall in industrial production, and 25% of the decline is due to a fall in vehicle miles driven (there has been a big rise in public transport use), rather than increased efficiency, as the IEA suggests. How long this decline will continue is difficult to predict. In my estimation, the rise in unconventional oil production will not overcome the fall in production of conventional oil worldwide, or even in the USA, over the next few years. The one projection the IEA likely got right was that supply will remain tight and oil prices will remain high.

Pete Mason

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