LONDON - A boom in domestic energy output in the coming years will significantly cut U.S. reliance on crude oil from the Organization of the Petroleum Exporting Countries, but prices will remain elevated because of the high cost of producing these unconventional reserves, according to forecasts from OPEC on Thursday.
These conclusions suggest that even if rising production of U.S. shale oil and Canadian oil sands fulfils one of the most prominent pledges of the recent presidential campaign--North American energy independence--U.S. motorists may not see significantly cheaper prices at the pump.
In its annual World Oil Outlook, OPEC acknowledged that rising domestic oil production would gradually diminish its role in the U.S. market, as oil imports there fall by almost three-quarters, or 5 million barrels a day, between 2011 and 2035. This decline is 1 million barrels a day larger than last year's estimate.
The report said this will result in sharp cuts in purchases from African and Middle-Eastern oil producers--most of them OPEC members.
However, much of this oil will be more expensive than previously expected, because the increased production will come from more costly North American reservoirs, it said. Both U.S. shale oil and Canadian oil sands have higher production costs than most OPEC crude oil because they require a greater effort to extract from the ground.
OPEC expects the average price of a basket of the group's main export crudes, which has always been closely linked to international oil benchmarks like Brent, "remains at an average of $100 a barrel over the medium term before rising with inflation to reach $120 a barrel by 2025," and to $155 a barrel 10 years later, the group said.
The assumptions, without being official predictions, constitute a sharp upgrade from the $85 to $95 a barrel through 2020, and $133 a barrel by 2035, envisioned in last year's report.
On Nov. 7, the OPEC basket price was $106.87 a barrel. It has averaged almost $110 a barrel this year.
The organization didn't provide any specific price guidance for U.S. oil benchmarks, West Texas Intermediate, which has recently traded at a discount to the OPEC basket price. OPEC's report did say that the WTI discount should narrow over time as pipeline bottlenecks that have caused a temporary Midwest oil supply glut are alleviated.
The producers' group, which supplies roughly one in three barrels of oil consumed in the world each day, has long been a bete noire of U.S. politicians, some of whom have alleged that money used to buy oil from members in the Middle East ends up financing autocrats or terrorists.
As such, the goal of reducing dependence on oil produced by OPEC featured prominently in the U.S. presidential campaign. Republican candidate Mitt Romney pointed directly to increased domestic oil production as a way to end "our expensive and dangerous dependence on OPEC."
U.S. President Barack Obama claimed that his fuel efficiency program could save, "as much as half of the oil we import from OPEC each day."
OPEC's data now suggest the U.S. is already on track to achieve this goal, following a large upward revision to its production forecast. OPEC sees the U.S. and Canada's 2015 oil production 2 million barrels a day higher than it forecast last year--the single largest upward revision in its report.
It now sees an increase of 14% to 11.2 million barrels a day in U.S. and Canadian production from 2011 to 2016, instead of a previously forecast decline. Almost all of Canada's oil exports go to the U.S.
OPEC cut its global oil demand forecast by over 1 million barrels a day to 92.9 million barrels a day by 2016. Though that is still an increase of 4.6% compared with this year, the downgrade reflects lingering concerns over global economic growth and tepid consumption in industrialized nations.
Despite the weaker demand outlook, OPEC said its members still plan to invest about $270 billion in oil projects between 2012 and 2016, adding 5 million barrels a day in liquids-production capacity.
As it plays less of a role in North America, OPEC expects to redirect the bulk of its shipments to Asia.
Copyright (c) 2012 Dow Jones & Company, Inc.
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