Supply Chain Expertise and Technology Blog by TMC, a division of C.H. Robinson

The Shifting Energy Outlook

Energy

The future of oil may be different than you think.

With all the discussions of Superstorm Sandy, the elections, and the fiscal cliff, one of the stories getting less press is the future of oil. There has been a dramatic and, for some people, an unexpected change. Experts now predict that the US will surpass Saudi Arabia as the leading producer of oil by 2020.

Surprised? How can this be? 

Only a few years ago experts believed there were certain geological formations that were impenetrable – places we’d never be able to extract oil. Today, we’ve developed new technology that can extract oil and gases from these formations. The controversial process is known as fracking, and it has been implemented from the Appalachians to the Rockies and is helping to lift overall production of these fuels in the U.S.

This month the International Energy Agency (IEA) published its flagship publication World Energy Outlook that states, “North America is at the forefront of a sweeping transformation in oil and gas production that will affect all regions of the world.”

In its central scenario of energy supply and demand, the IEA estimates that the US will become a net exporter of natural gas by 2020 and will be almost self-sufficient in energy, in net terms, by 2035. As the US becomes a major exporter of oil, there will be “a sea-change in global energy flows” according to the Agency.

In addition, more fuel efficient vehicles and energy friendly policies are helping to limit demand. Overall, global demand for oil is expected to increase to 99.7 million barrels of oil a day by 2035, up from 87.4 million last year the IEA estimates.

Will all of this lead to lower prices at the pump?

It is hard to tell, but many sources think not. We’ve written a lot about population growth in emerging markets and the idea of access to resources as a fundamental building block of society. Countries such as China and India will continue to drive demand for energy.  Also, prices at the pump are tied to global markets for fuel, and it is unclear how the geopolitical picture will change as the US becomes a leading exporter of gas and oil. Another variable is the future availability of water, a critical resource in the energy extraction industry.

Prices aside, most people like the idea of importing less oil leading to a healthier economy and increased energy independence.

What are the supply chain implications?

For many years, supply chain design was predicated on the assumption that energy is cheap and readily available. This changed radically with the increasing volatility of energy markets and the rise of the green movement. Will we come full circle over the next decade as new sources of energy come on stream? Or will environmental sustainability driven by concerns over climate change maintain the pressure to develop and build green supply chains? Will disruptions caused by fluctuating fuel costs continue to be a primary supply chain risk?

No matter where you stand on the topic, it’s plain to see large and unexpected changes are coming. Please share your thoughts or insights on this development. We’d love to hear your feedback.