Forget America’s fiscal cliff, Europe’s currency troubles or the emerging-markets slowdown. The most important story in the global economy today may well be some good news that isn’t yet making as many headlines — the coming surge in oil production around the world.
Until very recently, our collective assumption was that oil was running out. That was partly a matter of what seemed like geological common sense. It took millions of years for the earth to crush plankton into fossil fuels; it is logical to think that it would take millions of years to create more. The rise of the emerging markets, with their energy-hungry billions, was a further reason it seemed obvious we would have less oil and gas in 2020 than we do today.
Obvious — but wrong. Thanks in part to technologies like horizontal drilling and hydraulic fracking, we are entering a new age of abundant oil. As the energy expert Leonardo Maugeri contends in a recent report published by the Belfer Center at the John F. Kennedy School of Government at Harvard, “contrary to what most people believe, oil supply capacity is growing worldwide at such an unprecedented level that it might outpace consumption.”
Mr. Maugeri, a research fellow at the Belfer Center and a former oil industry executive, bases that assertion on a field-by-field analysis of most of the major oil exploration and development projects in the world. He concludes that “by 2020, the world’s oil production capacity could be more than 110 million barrels per day, an increase of almost 20 percent.” Four countries will lead the coming oil boom: Iraq, the United States, Canada and Brazil.
Much of the “new” oil is coming on-stream thanks to a technology revolution that has put hard-to-extract deposits within reach: Canada’s oil sands, the United States’ shale oil, Brazil’s presalt oil.
“The extraction technologies are not new,” Mr. Maugeri explains in the report, “but the combination of technologies used to exploit shale and tight oils has evolved. The technology can also be used to reopen and recover more oil from conventional, established oilfields.”
Mr. Maugeri thinks the tipping point will be 2015. Until then, the oil market will be “highly volatile” and “prone to extreme movements in opposite directions.” But after 2015, Mr. Maugeri predicts a “glut of oil,” which could lead to a fall, or even a “collapse,” in prices.