ENERGY BURST
BP’s chief economist thinks the United States could become selfsufficient soon.
Spencer Dale worked in central banking for a quarter of a century and for six years served as the Bank of England’s chief economist.
He helped set interest rates and monetary policy through the 2008 financial crisis.
Then, in 2014, he accepted the post of chief economist with the British oil and gas giant BP.
“I just thought, ‘Well, let’s go explore what the rest of the world could look like, just for the fun of trying something different,’ ” Dale told the Chronicle recently.
Dale said he expected the work to include macroeconomics, energy economics and geopolitics. But he’s been surprised by the focus on technology. “You can’t think about energy demands over the next 15 to 20 years,” he said, without considering how energy usage will change.
Dale manages BP’s global economics team and produces the annual Statistical Review of World Energy and Global Energy Outlook. AndDale think the U.S. is on the verge of becoming energy self-sufficient — meaning it will soon produce the same amount of energy it consumes, even if it still imports some fuels and exports others.
Q: What’s changing in the global oil market?
A: What’s really striking is just the extent to which the U.S. shale revolution has revolutionized the U.S. economy. It is obvious in the amount of jobs it’s created, the amount of GDP and wealth it’s created. But it’s also really shifted the energy battle. So this year, the U.S. was the world’s largest oil producer, for the second consecutive year, and oil imports were at their lowest since the mid-1980s. Exactly the same story for gas. Last year, the U.S. produced over 90 percent of the energy it needed to consume. If you go back 10 years, it was closer to two-thirds.
Project forward five years or so to early 2020 and the U.S. becomes self-sufficient in energy. If somebody walked into your offices 10 years ago and said, “I think in my lifetime, the U.S. will be self-sufficient in energy,” you would have said, “Why don’t you pop back to Londonand come back when you know your numbers a bit better.” I mean this is just absolutely gamechanging.
In any economic model I know, if you become an awful lot more self-sufficient at producing something you used to have to import, the impact on the exchange rate is very clear — which is the exchange rate goes up.
Q: What could foil the plan to be energy self-sufficient?
A: The main thing is anything which stopped U.S. tight oil and U.S. shale gas being able to fulfill its potential. The resource base and the technology to extract it is clear.
It may be that some people are less willing to put money into U.S. oil this time. That may act as a sort of bottleneck. My hunch is that may delay progress, but won’t fundamentally stop it. Ultimately, capital will flow where there’s returns. Perhaps a more fundamental thing is if you saw increased regulation which somehow prevented fracking from developing to its full extent — as result the U.S. would not be able to achieve its full potential. That would be the most obvious one.
Q: What does the future look like for technology in energy? A: In terms of technology, it’s every- where and it affects everything. A couple of examples: Renewable energy is growing astonishingly quickly. Wind and solar power grew by 15 percent last year. Perhaps the most astonishing one is solar power. Solar power increased 60-fold over the last 10 years. It’s doubled its capacity every 20 months on average over the last 10 years. It’s just astonishing.
Another example of technological gains is in shale. Everybody always knew this oil and gas was there, it just couldn’t be economically recovered. Technology’s changed that. The productivity gains in U.S. tight oil are mind-boggling. If I do it in terms of initial production per month of a rig, they’ve achieved productivity gains of over 30 percent a year every year for the last six or seven years — 30 percent. U.S. macro economy is looking at about one-and-ahalf? This is 30.
Q: How does the increase in productivity affect jobs?
A: The impact of this will be far greater than the actual number of people directly employed. Those people are generating wealth, and that wealth then spreads out, in many different ways. There are supply chains, they go out and buy food, they buy
houses.
Q: But doesn’t increased efficiency mean fewer jobs? A: No. Much of these efficiency gains were over six or seven years, when more and more rigs were operating, employing more and more people. So this is not a classic downsizing, using technology to displace workers. This was, as I become more and more productive, some of those parts of oil, which before were not economically recoverable because I couldn’t afford to get there, become economically recoverable, so I can now employ a new rig to get at it. And because the rig is so much more efficient, I can now drill in places I couldn’t drill before. There’s a complementarity here between these productivity gains and just more output.
Q: But the slump in oil production has lagged the loss of jobs, which means there must be some efficiency gains? A: What you saw is rigs and employment have come off far more rapidly than output. And some of that is a productivity gain. Some of that is also a sort of natural high-grading. So what you had is you had a lot of rigs operating. Some of those rigs operating were in far less productive spots than others. When oil is $100, fine, I can make money almost everywhere. As the oil price falls back down, I have to sort of converge onto the real sweet spots. As the result of which, a lot of those rigs, there was a lot of activity, but they weren’t generating much, because they were in relatively unproductive areas. In Britain, we call this a batting average, if you like cricket; you take out some of these, the average goes up. I always worry about cricket analogies.