There has been some handwringing in Canada since a report last month suggested the U.S. could be "all but self-sufficient" for its energy needs by 2035. The implication: that a steady rise in U.S. energy production would mean our oil sands producers would need to find markets elsewhere. Now, another report paints a different picture, suggesting the U.S. will still have a healthy need for imported oil 25 years from now, thank you very much. It's a reminder that predictions, and their underlying assumptions, say as much about the forecaster as the forecast.
First, consider the source: last month's report came from the Paris-based International Energy Agency (IEA), originally founded in response to the oil shocks of 1973/74, but whose role has evolved to include environmental/climate change awareness and advocacy. The second, from the U.S. Energy Information Administration (EIA), a government department in a country where the slogan "drill, baby, drill" is almost bipartisan.
Both predict rising crude oil and related liquids production in the U.S. in the next decade. But where the two differ sharply is their assumptions about consumption. The U.S. agency sees liquid fuel consumption virtually unchanged from 2011, while the European agency has oil substantially narrowing the gap between consumption and production through 2035, with consumption dropping by 1.4 per cent a year.
Under the American scenario, U.S. net imports as a share of consumption do decline marginally from 50 per cent in 2011 to around 45 per cent in 2035 and stay there. Net imports of liquid fuels dip from 18.62 quadrillion BTU in 2011 to 16 quadrillion in 2035 – a lower amount, but hardly reason for Canadian producers to panic.
The different approaches are summed up in a presentation given by an EIA bureaucrat earlier this year: The European agency assumes governments will continue to enact new policies and regulations that curtail crude oil use, while the U.S. department doesn't anticipate any new policies or regulations that have not yet been implemented. (The Europeans are also more optimistic than the EIA about increasing use of alternative energy like nuclear power and renewable sources). The U.S. forecast does take into account changing vehicle fuel economy standards, but sees the resulting declining use of motor gas more than made up by increasing liquids use elsewhere.
Chalk it up to cultural differences. Europeans are more progressive when it comes to climate change concerns and likely just assume the Americans will come around to their way of thinking. That may yet happen, but it's highly speculative, and besides, the current U.S. President seems more concerned about dirty coal than oil.
Forecasting that the U.S. will be able to meet its own energy needs is actually a bet on Americans embracing the climate change concerns of Europeans to a much greater degree than they have, and reducing oil consumption as a result. If you don't buy that prediction, there's really no reason to believe U.S. demand for Canadian oil will dry up any time in the foreseeable future.
Sean Silcoff