Many people don’t realize that increasing domestic oil production in America will not necessarily lower prices at the pump. There has been a lot of public discussion about opening new pipelines and expanding our domestic sources of crude oil production, ideas which typically garner public support because people are tired of such high gas prices.
The reality is, potential domestic oil production increases in America and Canada are not likely to lower prices at the pump. This is due to the fact that oil is a global commodity, and the fact that increase in demand for this commodity is coming from places like India and China where demand just keeps growing.
According to expert research, and a newly released International Energy Agency (IEA) report, it is the potential for oil production in foreign countries like Iraq that holds the most promise for lowering oil prices in the future.
Once a major player in the oil markets, the export sanctions during Saddam’s regime and the two wars fought on Iraqi soil brought oil production down to almost nothing. Today, Iraq’s production is back up to about 3 million barrels a day, and the IEA predicts that they will reach 6.1 barrels a day by 2020 and potentially 8.3 million barrels a day by 2030.
The IEA projections were actually quite a bit lower than targets set in contracts between the Iraqi government and private oil companies to the dismay of some Iraqi officials. But the IEA projections would still position Iraq as the world’s second most influential member in OPEC ahead of Iran and Venezuela, behind only Saudi Arabia in terms of production in the future.
This kind of production increase would change the oil markets significantly, and with close proximity to China, Iraq would be in the prime position to supply their growing demand. In addition to having a lot of oil available for extraction, the cost of oil production in Iraq is much lower than the some of the costly unconventional production methods that are being used in the U.S. and Canada based on the type of resources we have. Unconventional methods are those that don’t use an oil well.
In a recent phone interview with TIME Magazine, IEA chief economist Fatih Birol explained, “In the supply side of the global oil equation, Iraq is by far the most important player. How much additional oil Iraq can bring to production will have an enormous effect on oil markets.”
The IEA report also warns that if critical legislation and oil industry reforms are not passed in Iraq, crude oil production growth could be slower resulting in loss of wealth for the Iraqi economy (upwards of $3 trillion) and crude oil prices of $140/barrel in 2035, $15 more per barrel than predicted if the reforms go as planned.
Whether or not Iraq is able to reach their potential production will depend on a lot of variables - like significant financial investment and a stable government - which are not guaranteed. But most importantly, what the IEA report demonstrates is the highly unpredictable nature of global oil markets. This highlights the need for America to invest in cleaner and more renewable energy sources and a concerted focus on energy efficiency if we want to achieve energy independence in the future.
We cannot rely on increased domestic oil production alone to stabilize energy and fuel prices for Americans. To create a Sustainable America, we will need to continue to invest in oil alternatives like natural gas, biofuel and electric vehicles that run off clean energy sources.