Hidden factor behind brighter US energy outlook

The International Energy Agency made headlines in November when it published a report predicting the US would become the world's leading oil producer by 2020 and almost self-sufficient in energy by 2035. But there's a key part that's been largely overlooked, says Fatih Birol, chief economist at the IEA, in an interview with The Christian Science Monitor. Almost half of the US improvement will come through energy efficiency. Here are edited excerpts from the interview:

Question: The term “energy independence” is used frequently by policymakers, notably during the most recent US presidential campaign. How do you define the term?

Answer: When we look at the future, oil and gas import dependency is set to increase everywhere in the world except for one country, which is the United States. We expect that the US will be a net natural gas exporter very soon and oil import dependency will go down substantially. For example, the US was, until recently, importing a significant chunk of its oil from the Middle East, and we expect that very soon the US may not need to import any from the Middle East.

The giant steps the United States made in terms of self-sufficiency, or energy independence, is not only the result of the substantial growth in oil production, but also as a result of the recently introduced fuel-efficiency standards [for cars and light trucks]. And when we look at our numbers, we think about 55 percent of the success goes to the production growth and 45 percent on the consumption side, pushing demand down. So therefore, for reducing import dependency, you need to push to increase production as the US did, but government policies are also crucial.

Q: Is it plausible for a nation to aspire to be completely self-sufficient in energy?

A: If the markets are connected with each other, it is not possible. In terms of oil markets, it is not possible because if the oil prices go up, the US economy will still be affected. In natural gas it’s a different story. Natural gas has different, segmented markets. Today the US natural gas prices are much cheaper than the other regions. For example, they are five times cheaper than Europe and eight times cheaper than Asia. So this is a different story.

Q: The report finds that major energy consuming countries haven’t fully tapped into the potential of energy efficiency measures. Why not?

A: For years and years, energy efficiency was neglected in the policymaking. I've followed international energy policymaking for some time and energy efficiency is the epic failure of policymaking.... There are some important energy initiatives in the last year but, despite that, we see that only one-third of the economically viable energy efficiency potential is used. And this is just from an economic point of view, leaving aside the environment, climate, and others. Just from an economic point of view this is really a nonsense policy. Why? Just let me give you one example:

Last week I was in Oslo in a panel with a CEO of a major international oil company and I told him, "If you have an oil field, and it makes a lot of money for you, and you produce one third of the oil, and after one third, they close oil production down and you don't use any more of the oil. What would you do?" He said, “I would fire the reservoir engineer.” It's exactly the same story. We use one-third of this energy efficiency potential and two-thirds are left unused. This is a big problem, and momentum is growing, But we are asking governments to be much more effective here.

Q: The IEA's 2012 World Energy Outlook highlights the connection between water and energy. What role does water play in energy production?

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