Michael Giberson
Earlier this week the International Energy Agency released their annual World Energy Outlook, and new is a forecast that the United States would surpass Russian and Saudi Arabia to once-again become the world’s largest oil producer, sometime around 2020. The news set off a wave of happy press, i.e. the Wall Street Journal, more WSJ, Fox Business, Oil and Gas Journal, Reuters, and this odd warning from OPEC that said the report could lead to higher prices. Mark Mills offers a slightly tempered view of the IEA report at Forbes.
Many of the news reports, if you get beyond the headline and first few paragraphs, do provide a bit of context. The projection depends on a host of factors, not the least of which is the price of oil over the next few years. If oil prices drop much below $60 bbl., the U.S. oil boom will slow much more quickly than Saudi or Russian output. U.S. regulatory changes, the pace of pipeline construction, and numerous other factors will also affect how quickly U.S. production can grow.
More generally, such long term forecasting exercises are regularly wrong. Indeed, the news here is exactly the change in the forecast, i.e., the IEA view that their earlier forecasts were wrong. The obvious question is “why we should believe the new view?” Of course changing views when the facts change is a most reasonable thing to do, but we ought not believe that the facts can’t change again.
I recommend we all go read Vaclav Smil on the “Perils of Long-Range Energy Forecasting” (Technological Forecasting and Social Change, 65:3, 2000).