'Revolutions' Unfold Within Oil Industry In the stodgy world of global oil, we don't hear the term revolution tossed around very often. But oil analysts are watching dramatic change take place on the supply side of the industry. Things like where the oil is coming from and who is buying it.

'Revolutions' Unfold Within Oil Industry

'Revolutions' Unfold Within Oil Industry

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In the stodgy world of global oil, we don't hear the term revolution tossed around very often. But oil analysts are watching dramatic change take place on the supply side of the industry. Things like where the oil is coming from and who is buying it.


It's MORNING EDITION from NPR News. Good morning, I'm Steve Inskeep.


And I'm David Greene. Not so long ago, politicians were demanding, day in and day out, that the U.S. end its dependence on foreign oil. They want our country to enjoy what they call energy independence. Well, since those buzz words became popular, there have been some major changes in the global oil industry, perhaps even a revolution, some analysts believe.

One major change is that the United States is supplying much more oil, but there are also now different countries demanding oil. These shifts are spelled out in a new report from the International Energy Agency. NPR's Tom Gjelten reports on how the global oil game is changing.

TOM GJELTEN, BYLINE: First, there's a new lineup of oil suppliers. The new star performer? The United States. The International Energy Agency says U.S. growth in oil production last year set a record for a country outside OPEC. The new U.S. oil is coming largely from tight shale formations previously considered impenetrable. Innovative production techniques have now unlocked those reserves.

FRANK VERRASTRO: We're learning from the rocks.

GJELTEN: Frank Verrastro is an energy expert at the Center for Strategic and International Studies. Turns out shale can be broken by hydraulic fracturing - fracking. Horizontally drilled wells can reach inaccessible areas. It's happening in North Dakota, with the Bakken shale formation; and in Eastern states with the Marcellus formation. And Frank Verrastro says petroleum engineers have learned to go deep as well.

VERRASTRO: We can drill six-mile wells, 30,000 feet wells. So in the Marcellus, there's a trend below the Marcellus, the Utica. Below the Utica is the Ordovician. Below the Ordovician is the Mahogany Zone. And now, we can access these things.

GJELTEN: Verrastro spent more than 20 years in the oil business before moving into government and policy work. Now, he'd like to go back.

VERRASTRO: I think this is the most exciting time in the industry. I wish I was 20 years younger.

GJELTEN: In Canada, new oil is being produced from tar sands. And Ed Morse, chief energy economist at Citibank, says it's just the beginning.

ED MORSE: I'm very optimistic that the supply revolution in North America will persist, and that it will start spreading to other countries. We're already seeing it spread into Mexico; I think we'll go to Russia. So I'm optimistic on that.

GJELTEN: That's the supply revolution. There's also a revolution on the demand side. The economic slowdown, especially in Europe, means less demand for oil than there would be if factories were going at full tilt. Plus, the move to energy efficiency - here in the U.S., for example - means less oil needed. This is in the industrialized countries.

On the other hand, there are new buyers. The developing countries are burning a lot more oil. Last fall, the International Energy Agency predicted emerging economies, like China and India, before long would overtake the industrialized countries in their oil consumption. Executive Director Maria van der Hoeven says the IEA did not realize how soon that moment would come.

MARIA VAN DER HOEVEN: But it's happened, and it's happened fast. It's faster than expected.

GJELTEN: The IEA's new oil report, released yesterday, says for the first time, the emerging market economies are now the dominant oil buyers on the global market. Oil Economist Ed Morse says these supply and demand revolutions have repercussions.

MORSE: In the geopolitics of energy, there are only winners and losers. This is not a situation in which everyone wins.

GJELTEN: The U.S. is a winner; the days of depending on Saudi Arabiam, for oil, may be ending. Countries in the Middle East may lose some of their geopolitical clout, though they may not want to admit it. Speaking here in Washington recently, Saudi oil minister Ali al-Naimi bristled at the idea that the United States and other countries no longer rely on a secure oil flow from the Middle East.

ALI AL-NAIMI: I believe this talk of ending reliance is a naive - a rather simplistic view. We are all part of a global market, and no country is truly energy independent.

GJELTEN: The minister's point - even when a country produces all the oil it needs, consumers in that country still pay the global market price. Still, consumers will be winners in the new oil game. Oil supplies should soon be abundant enough to bring generally lower prices. In the last couple of years, oil has ranged from $90 a barrel, to $110. Over the next five to 10 years, Ed Morse sees that price going down.

MORSE: That dramatic drop will mean, in our judgment, that the current $90 floor is going to turn into a ceiling.

GJELTEN: So $90 would be the high-end - instead of the low-end - price.

The losers, in this case? Those countries whose economic well-being depends heavily on oil revenue - Venezuela, Iran, Nigeria, Saudi Arabia - countries that just a few years ago, looked like winners

Tom Gjelten, NPR News, Washington.

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