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National Intelligence Council: Shale Revolution Robbing OPEC Of Pricing Power

Jim Snyder, Bloomberg

The success of American drillers in coaxing fossil fuels from shale rock has the potential to boost production so much that it may deny OPEC the power to set global oil and gasoline prices, an intelligence advisory panel concluded.

Rising domestic production from hydraulic fracturing is expanding U.S. supplies, which would shift the balance of power in global energy markets, according to the report by the National Intelligence Council released today. The council, an adviser to the director of national intelligence, publishes a report every four years to aid policymakers’ long-term planning.

As the U.S. adds supply, the Organization of Petroleum Exporting Countries’ influence over prices would wane, according to the report that echoes previous studies that project benefits from a drill process known as fracking.

“In a tectonic shift, energy independence is not unrealistic for the U.S. in as short a period as 10-20 years,” the report states.

President Barack Obama is promoting development of natural gas and crude oil as an economic resource, and formed a task force this year to avoid federal rules that would slow fracking. The administration is considering limits on the process as environmentalists say injecting water, sand and chemicals underground to free trapped gas and oil poses a threat to clean water supplies.

The intelligence analysis says concern about the environmental impacts is the “greatest obstacle” to fracking.

‘Close Loopholes’

“A tighter regulatory environment — which is beginning to happen in some U.S. states — could also close loopholes and reassure public safety,” the report states.

The 12 nations of OPEC, including Saudi Arabia, Iraq and Venezuela, produce more than 40 percent of the world’s oil, a volume that gives its production decisions influence over the crude prices, the single largest contributor to gasoline costs. Oil prices quadrupled in 1974 after OPEC blocked shipments to the U.S. in retaliation for the U.S. re-supplying Israel’s military during a war with its Arab neighbors.

Additional production could significantly cut oil prices, increase U.S. economic activity by more than 2 percent and add 3 million jobs by 2030.

Total global crude output would exceed demand by more than 8 million barrels a day, at which point OPEC would lose price control and crude oil prices would collapse, according to the report.

“OPEC’s production levels are one of the key variables in world energy prices,” Daniel Yergin, vice chairman of IHS Inc. (IHS), an Englewood, Colorado, based consultancy group, said in an interview before the report was published. “If there is more oil in a well-supplied market, prices would be lower than they would be in a tight market.”

Output Doubles

The National Intelligence Council’s report reiterates recent estimates that U.S. oil production may expand to 15 million barrels a day, more than double current output, and enough to make the nation “a major energy exporter” by 2020.

Additional production could significantly cut oil prices, increase U.S. economic activity by more than 2 percent and add 3 million jobs by 2030, the report states.

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