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The oldest and largest refinery on the East Coast will stay open thanks to a deal between Sunoco and the private equity firm The Carlyle Group, with the groups announcing Monday that they have agreed to terms on a joint venture at the facility.

The new venture also will make a substantial investment in the facility to help it import lower-cost oil from North Dakota’s Bakken formation, shift to refining a higher proportion of ultra-low-sulfur diesel and use natural gas from the booming Marcellus Shale formation that lies below much of Pennsylvania, Carlyle officials said.

The Philadelphia refinery, which had struggled to make money as the price of imported crude oil rose, was scheduled to close in August. In April, Sunoco announced that it had entered into “exclusive discussions” with Carlyle about a possible joint venture involving the 330,000-barrels-per-day facility, which has about 850 workers.

On Monday, the groups announced they had agreed to form Philadelphia Energy Solutions, a joint venture that will enable the facility to continue operating with the help of millions of dollars in state taxpayer subsidies. In a statement, the companies said the agreement will save all of the current refining jobs and create up to 200 more as the refinery is updated and expanded. The deal is expected to close in the third quarter. Financial terms weren’t disclosed.

“This is the best possible outcome for everyone involved,” Brian P. MacDonald, Sunoco’s chairman and chief executive officer, said in a statement. “Existing jobs will be saved, new jobs will be created and new business opportunities will be given the chance to develop.”

Federal energy officials had warned that the refinery’s closure could lead to gas price spikes in some parts of the northeastern United States. Labor unions pushed to keep the facility open, and all levels of government got involved, from White House economic adviser Gene Sperling to Philadelphia Mayor Michael Nutter, to cut red tape and speed up approvals.

“This is a big fill-in-the-blank deal,” said U.S. Rep. Bob Brady, D-Pa.

Union leaders praised the agreement, and local members voted 98 percent in favor of ratifying a reworked contract with the joint venture Monday night, said Nancy Minor, vice president of the United Steelworkers Local 10-1.

“This wouldn’t have happened were there not a union there willing to fight for this facility,” United Steelworkers president Leo Gerard said.

A key thrust of the new venture will be to improve refining efficiency, reduce waste and emissions and cut down on the reliance on more expensive foreign oil. Carlyle Managing Director Rodney Cohen said the company planned $200 million worth of capital improvements and would bring in a new leadership team.

“We are going to explore a range of new energy and chemical businesses,” Cohen said on a conference call.

One challenge will be to expand the facility’s connection to domestic oil and gas pipelines.

The plans include building a high-speed train unloading facility to bring in up to 140,000 barrels a day of domestic oil, particularly high-quality, low sulfur crude from the Bakken, Carlyle officials said.

Carlyle said it also wants to expand the use of Marcellus Shale natural gas as a lower-cost, lower-emission fuel for its refinery while exploring the possibilities of producing natural gas liquids or other natural gas byproducts. A number of parties are looking at getting involved in transporting the gas to the refinery, Carlyle officials said.

Under terms of the agreement, Sunoco will contribute its refinery assets to the joint venture in exchange for a non-operating minority interest. Carlyle will have the majority interest and oversee day-to-day operations, officials said.

Gov. Tom Corbett lauded the announcement of the project, which is getting state support. A tax-free zone is possible for the site, while the state is offering up to $25 million in grants and the opportunity to issue tax-exempt bonds, Corbett said.

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Crude output in the United States is at its highest in 14 years, adding to inventories that are keeping oil prices in North America low and feeding into a global oversupply leading Arabian Gulf producers to adjust their export levels.

Production rose above 6 million barrels per day (bdp) in the first three months of this year, according to the US Energy Information Administration (EIA).

“Strong growth in US crude-oil production since the fourth quarter of 2011 is due mainly to higher output from North Dakota, Texas and federal leases in the Gulf of Mexico, with total US production during the first quarter of this year topping 6 million barrels per day for the first time in 14 years,” the EIA said.

In the final quarter of last year, the US produced 5.9 million bpd but the production increases were met with sluggish demand, as the US battles harsh economic times.

A lack of transport options from the US crude hub at Cushing, Oklahoma, has led to a supply glut there. A pipeline connecting the US Gulf coast to Cushing was reversed this month, but experts say the impact of unblocking this bottleneck has yet to be felt on inventory levels.

“Stocks in Cushing are still high, even with the opening of the pipeline,” said Sammy Al Mehaid, an oil market analyst at the office of the Opec governor for Saudi Arabia. “The extra supply is adding bearish momentum on the US domestic market.”

US crude inventories remain near heights last reached in 1990, EIA data shows.

The price of crude on the New York Mercantile Exchange (Nymex) has dropped from about US$98 to about $85 a barrel this year.

The Cushing bottleneck created a wide disparity between US and European prices, with the European benchmark Brent trading in the region of $100 a barrel.

Strong US production is adding to a global supply overhang that has pushed prices down in spite of the stand-off over Iran’s nuclear programme that added a hefty risk premium to the price of a barrel of oil.

“Price is not giving you a true picture of supply and demand, it’s still being highjacked by geopolitical uncertainties,” said Mr Al Mehaid.

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Now this once-sleepy chunk of north-central Pennsylvania is a star on the map of an emerging national energy rush. Six hotels are new or being built, and about 100 companies have moved to town, sometimes so fast that the head of the local Chamber of Commerce has told executives wanting guided tours to wait.

“I’ve said, ‘Look sir, get in line,’ ” says Vince Matteo, chief executive of the Williamsport/Lycoming chamber. “Now I know people in their 20s with high school (diplomas) making $120,000 a year.”

Much of Wall Street and Washington is seized by the hope that the U.S.‘s energy future will be as bright as Williamsport’s. As Americans heave a sigh of relief at gasoline prices falling back from near $4 a gallon, big new discoveries of domestic oil and natural gas hold the promise of more substantial benefits for the U.S. economy for decades to come — even the possibility of energy independence.

Every president since Richard Nixon has called for the U.S. to wean itself from needing oil from unstable or unsavory countries. The nation’s new-found energy riches are likely to bring that ambition closer to reality in the next two decades, according to many forecasters.

It’s no pipe dream. The U.S. is already the world’s fastest-growing oil and natural gas producer. Counting the output from Canada and Mexico, North America is “the new Middle East,” Citigroup analysts declare in a recent report.

The U.S. Energy Information Agency says U.S. oil imports will drop 20% by 2025. Oil giant BP projects the U.S. will get 94% of its energy domestically by 2030, up from 77% now, as oil imports fall by half. Energy billionaire T. Boone Pickens, a major investor in oil and natural-gas companies, said the U.S. can at least end oil imports from Organization of Petroleum Exporting Countries, about half its total, through new drilling and by shifting diesel-swilling trucks to natural gas. Any other oil needs should be from politically stable allies such as Canada, Pickens said.

Most enticing, a team of analysts and economists at Citigroup argues that the U.S., or at least North America, can achieve energy independence by 2020, as more domestic production and doubling down on conservation produce a virtuous cycle. The U.S. can make itself a net exporter of crude oil, refined products and natural gas — says Citigroup energy strategist Seth Kleinman.

“The notion of the U.S. getting to zero net imports of oil is obviously a sexy notion, but it’s not necessary for it to mean the world will change,” he says. “We are seeing a dramatic collapse in U.S. net imports of oil as we speak, to the tune of almost 1 million barrels a day each year over the last four years.”

If anything like that happens, an improbable-sounding litany of good things can result.

In practical terms, more energy independence could mean 3.6 million new jobs, enough to cut unemployment by two percentage points, Citigroup argues. It could help manufacturers and chemical businesses that use lots of energy or make products from natural gas. It might give the U.S. a structural advantage on trade partners in energy costs, helping to offset the edge that cheaper labor gives nations such as China, Kleinman says. Already, U.S. natural gas prices are a seventh of what they are in Beijing, Pickens says.

“The potential is clearly there for a genuine revitalization and reindustrialization of the economy,” Kleinman says. “In industries where energy is a major element of costs, the U.S. is moving into a uniquely advantaged position.”

After years of gripes that the U.S. imports too much oil, the energy industry is pumping a gusher of good-news numbers:

•The U.S. price of natural gas has plummeted more than 80% since 2008, including nearly 45% in the last year, thanks to new supplies. The falling cost of natural gas alone will save U.S. households $926 a year between now and 2015, consulting firm IHS Global Insight says.

•The USA’s 15% gain in crude-oil production since 2008 is by far the world’s biggest, with new fields just beginning to be developed. The U.S. has overtaken Russia as the world’s largest refined-petroleum exporter, according to Citigroup.

•Utilities’ switchover to cheap natural gas from coal is lowering power bills. One utility switching to more gas plants, Georgia Power, has filed to cut Atlanta-area electricity rates 6%, citing a 19% drop in fuel costs.

Drill and conserve

A dozen years after Texas wildcatter George Mitchell commercialized a new gas-drilling technology called hydraulic fracking, the new energy boom is taking off. It began with gas, as fields such as the Marcellus Shale in the Northeast and the Barnett Shale in Texas began producing gas that hadn’t been recoverable until Mitchell combined fracking — which uses chemicals, water and sand to force gas out of rock — with horizontal drilling, which yielded much more than simply drilling straight down.

More recently, the same technologies have been adapted to drill for oil. Oil fields are being developed from Pennsylvania to Alaska — a half-dozen or more major sites, each including many smaller ones.

The rush to oil from gas is now so fast that Devon Energy, the No. 3 independent oil-and-gas-driller, isn’t drilling a single new gas well this year, CEO John Richels says.

Because of fracking, Citi says U.S. oil production might climb more than a third by 2015, driven by “tight oil” from shale and tar sands that until recently was too costly to extract. Government estimates say domestic production will rise 22% by 2020 to 6.7 million barrels per day. At the same time, the 19 million barrels that Americans burn daily may fall by 2 million, by Citi’s numbers. One reason: The EIA says the U.S. will be 42% more energy-efficient by 2035, continuing an enduring trend.

One reason for all that new efficiency is regulation.

Automakers face federal corporate-average fuel economy standards doubling, to up to 54.5 miles per gallon by 2025. A 2007 law requires oil companies to quadruple production of renewable auto fuels by 2022. States such as California are making utilities buy up to 60% more renewable-sourced electricity by 2020, says Stuart Hemphill, vice president for power supplies at Southern California Edison. “In California, only two kinds of (energy-producing) facilities are getting built — natural gas and solar,” Hemphill says.

Why $2 gasoline is unlikely

For consumers, America’s new energy supplies help contain costs — but they’re not a magic path back to $2 gasoline.

The good news: Natural-gas heating costs have dropped nearly 40% since 2008, undoing half their 160% climb after 1999. Electricity costs have remained flat, too.

The bad news: Gasoline prices have flirted with all-time highs this year, and even the fast-emerging new supplies are unlikely to offer major relief soon.

To understand why, it helps to master some numbers.

First is the number two — the U.S. has two main energy markets, one each for electricity and transportation. They’re very different. Electric utilities use mostly coal, natural gas and nuclear power, or renewables, almost all from the U.S. and Canada. Cars use oil, about 45% of it imported.

The second big number is 86 — the 86 million barrels of crude produced worldwide daily. About 19 million are burned in the U.S., three-fourths of them for transportation, the government says. About 8.9 million are imported, 4.2 million from OPEC. Bringing crude-oil imports down will be about changing how Americans fill gas tanks — or whatever advanced electric-car battery replaces gas tanks.

Domestic natural-gas gluts will do little for real energy independence until more cars use electricity or natural gas, says Hemphill. That’s one reason Pickens is campaigning to subsidize converting business truck fleets to natural gas — legislation the Senate defeated in March.

“I’m for anything American,” Pickens said. “I want at least to get off the 5 million barrels a day we get from OPEC.”

The most important number may be $70 — the estimated cost to produce a barrel of oil from shale or tar sands, the heart of the new U.S. supplies. While natural-gas prices have sunk, oil prices might not, since they typically follow the cost of producing the most expensive barrel on the market.

Today’s world oil prices of about $111 a barrel are boosted by tensions from Iran’s nuclear program, as well as emerging-market oil demand that will exceed that of developed nations for the first time this year, according to the International Energy Agency. At about $95 a barrel, U.S. oil prices have risen, too, even though the U.S. doesn’t import Iranian crude.

Using the rule of thumb from research firm IHS CERA, that a $10 move in crude changes U.S. gasoline prices by 24 cents a gallon, dropping crude to $70 would lower pump prices about $1, leaving gasoline near $3.

Broad economic impact

Even so, all this new energy is creating jobs across the country. North Dakota, now the nation’s fourth-largest oil producing state, boasts a 3% unemployment rate, the nation’s lowest. In Williamsport, the local economy grew 7.8% in 2010, making it one of the nation’s fastest-growing metro areas.

Projections for energy-related jobs vary, but are all pretty large. More than two-thirds of Citi’s estimated 3.6 million new jobs will come from multiplier effects, as the 550,000 new workers in fossil fuel-related jobs spend their incomes, or as other Americans spend the money they save from cheaper energy, Citi says. IHS Global Insight says the natural-gas boom alone has created 600,000 jobs and will rise to 1.6 million by 2025.

The money saved on energy will pay dividends throughout the economy. Lowering the $400 billion the U.S. sends abroad annually for oil would function like a huge tax cut, says Chris Lafakis, energy economist at Moody’s Analytics.

“A third to 40% would be my guess” at how much the U.S. can cut imports by the next decade, Lafakis says. “At 40%, that’s $160 billion a year, and that’s massive. It’s like the temporary payroll tax cut we have now, plus a third, and it lasts forever.”

A less statistical way to reckon all this is to look at Williamsport.

“It put people to work who hadn’t worked in a long time,” Pennsylvania Gov. Tom Corbett says. “It was a natural-gas rush that put demand on housing, on stores, on restaurants.”

Watching for exaggerations

Yet many hopes — and fears — about the U.S. energy boom will likely prove exaggerated.

Citi’s thesis that gas and oil will stay cheaper in the U.S. than abroad, for example, assumes most exports of U.S. crude remain illegal and natural-gas exports stay rare, says Mark Zandi, chief economist at Moody’s Analytics. Instead, U.S. crude is likely to be refined into exportable products such as gasoline, while infrastructure to export liquefied natural gas improves. Both will pull U.S. prices toward higher world levels, he says.

“Markets have a wonderful way of finding their way around restrictions when there’s money to be made,” Zandi says.

Williamsport exemplifies the likeliest impact of all. With natural-gas prices so low, drilling has all but halted. But gas companies are using the lull to build pipelines, as drilling action moves to oil patches in Western Pennsylvania.

In the meantime, some spinoff industries are coming into focus. Shell has announced plans to build a cracking plant, which will make chemicals from natural gas, outside Pittsburgh. The expected payoff includes 10,000 construction jobs, Corbett says. All this is part of turning the short-term energy boom into a long-term economic plan, he says.

While short-term booms wax and wane, hope persists that the new oil and gas means a better future for Williamsport, and for America.

“They tell us not to worry,” the Chamber’s Matteo says. “The gas isn’t going anywhere and neither are they.”

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The world was reinvented in the 1970s by soaring oil prices and massive transfers of national wealth. It could be again if the price of petroleum crashes — a real possibility given the amazing estimates about the new gas and oil reserves on the North American continent. The Canadian tar sands, deepwater exploration in the Gulf of Mexico, horizontal drilling off the eastern and western American coastlines, fracking in once-untapped sites in North Dakota, and new pipelines from Alaska and Canada could within a decade double North American gas and oil production.

Given that North America in general and the United States in particular might soon be completely autonomous in natural gas production and within a decade without much need of imported oil, life as we have known it for nearly the last half-century would change radically.

Take the Middle East. The United States currently devotes about $50 billion of its military budget to patrolling the Persian Gulf and stationing thousands of troops in the region.

America was the target of a crippling oil embargo following the 1973 Yom Kippur War. Ever since, it has often hedged its support of democratic Israel in fear of oil cutoffs or price hikes from the Middle East. Just as often, the United States finds itself hypocritically calling for democracy while supporting medieval sheikdoms and monarchies in the oil-exporting gulf. Likewise, Western petrodollars seem to find a way into the coffers of terrorists bent on killing Americans and their allies.

But at a time of shrinking defense budgets, an oil-rich America might not need to protect Middle Eastern oil fields and lanes. U.S. foreign policy for once really could be predicated on the principle of supporting those nations that embrace constitutional government and human rights, without worry that offended dictators, theocrats and kings would turn off the spigots.

Curbing the voracious American appetite for imported oil could also help lower world petroleum prices for everyone. Poorer nations in Africa, Asia and Latin America would save billions of dollars on their imported-energy bills.

High-cost oil has warped the global system by rewarding luck and punishing accomplishment. Oil-poor countries that earned their wealth through hard work and innovation — China, Germany, India, Japan, South Korea and Taiwan, for example — should be rewarded with reduced imported-energy costs, while those that became rich by having someone else find and develop the oil beneath their feet might find their windfalls reduced. Americans tend to admire the earned wealth of China and Japan more than the accidental riches of Saudi Arabia and Iran. Without high-priced oil, Hugo Chavez and Mahmoud Ahmadinejad are just neighborhood loudmouths rather than regional threats.

Unemployment here in the United States has not dipped below 5 percent since February 2008, during the last year of the Bush administration. But some estimates suggest that 3 million to 4 million jobs will follow from new gas and oil production alone. That figure is aside from the greater employment that would accrue from reduced energy costs. Farmers, manufacturers and heavy industries could gain an edge on their overseas competitors, as everything from fertilizer and plastics to shipping and electrical power would become less expensive.

America is spending nearly a half-trillion dollars a year on imported oil — the greatest contributor to the massive annual U.S. trade deficit. We are also currently borrowing more than $1 trillion a year to finance chronic budget deficits, which in turn weaken the dollar and make oil imports even more expensive.

But without the drag of high-cost imported oil, the economy would grow more rapidly, and that could shrink both trade and budget deficits — lessening somewhat the need for spending cuts and new taxes.

The problem with green energy has not been the idea, per se, of wind and solar power and electrical cars, but the use of massive federal subsidies, in times of record fossil-fuel prices, to rush into commercial-production technologies that are not yet cost-competitive or reliable. The president recently talked of vast algae reserves. True, energy-rich scum may prove to be helpful in the distant future. But right now we don’t have the money to find out — unless we tap our burgeoning fossil-fuel supplies, which can provide a critical bridge to new sources of green energy.

The world was transformed for the worse in the 1970s, when world oil prices quadrupled. A half-century later, it could change again for the better should oil prices crash. We should do our part in ensuring that at last the tables are turned.

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Recent Iranian saber rattling about closing the Strait of Hormuz is yet another reason for the U.S. to look north to Canada for oil imports. Military confrontation or a perceived threat of it in the strait — the route for almost 17 million barrels of oil daily — would wreak havoc on global oil supplies. The effects for the United States would be particularly severe: 75 percent of oil from Saudi Arabia, which at 12 percent of net U.S. imports of crude oil and petroleum products is our second-largest supplier, passes through this strategic waterway.

Occasional threats to global oil supply are one reason why U.S. energy security requires “an all-out, all-of-the-above strategy,” as President Barack Obama put it in his 2012 State of the Union address. Though this strategy must include cleaner natural gas, as well as alternative energy sources, the U.S. will continue to depend on oil to satisfy its energy needs in the short-to-medium term.

Here, Canada, which at 25 percent is already the United States’ top source of net oil imports, can play an even-greater role in maintaining the stability of the U.S. energy picture. With 175 billion barrels, the province of Alberta is home to the world’s third-largest oil reserves, behind Saudi Arabia at 260 billion barrels and Venezuela at 211 billion — and it is right in the U.S. backyard.

Canadian oil is also important for maintaining U.S. refinery jobs. Home to nearly half of U.S. refining capacity, the Gulf Coast is dependent on foreign sources for approximately 65 percent of its crude oil, so any disruption in imports could force refineries to scale back their operations. Here, a slowdown in Saudi supply is not the only concern.

Mexico and Venezuela, two of the top four suppliers to the Gulf Coast, are expected to reduce their U.S.-bound exports in the next few years. Mexico, the largest source of Gulf Coast imports with 1.1 million barrels per day (bpd), saw production in its Cantarell field drop by more than 1 million bpd from 2004 to 2009. For the United States, this meant a 500,000-bpd decline in Mexican exports to Gulf Coast refineries from 2006 to 2010. The 2010-2015 outlook for Mexico’s oil production does not look much brighter.

In Venezuela, President Hugo Chávez’s politically motivated management of the state-owned oil company, PDVSA, has led to declines in the country’s oil output. At the same time, although U.S. refineries have the unique capacity to process Venezuela’s heavy crude oil, Chávez would rather ship his crude to Asia than to the United States. If he stays in office past Venezuela’s October presidential election, U.S. refineries would do well to prepare for a further reduction.

Canadian oil is certainly not the sole answer to these hemispheric developments or to solving our overall energy needs, but it can help to maintain a steady flow of oil to U.S. refineries while we continue to explore the large-scale use of alternative energy.

One factor behind much of the opposition to drilling in the Canadian oil sands is that Canada’s oil sands must be processed to create synthetic crude oil suitable for transport by pipeline and refining. This process creates carbon dioxide emissions that, according to Cambridge Energy Research Associates, are 6 percent greater than the average U.S. crude supply on a “wells-to-wheels” basis. Other estimates place it higher.

Besides greenhouse gas emissions, environmentalists also deride the land devastation caused by mining the oil sands. But oil companies are legally obligated to restore land to its original condition, which could mitigate this concern. The impact on Alberta’s forests will be further minimized as in-situ extraction, using pipes and steam to recover resources, increasingly replaces mining. Still, in situ is not without its environmental concerns: The amount of steam used per barrel of oil must be further reduced to decrease emissions and water and energy usage. It is worth noting, too, that at today’s oil prices, the oil sands will likely be developed with or without the U.S. market.

Of course, the Keystone XL Pipeline — a 1,700-mile project that would carry 700,000-830,000 bpd of crude to Oklahoma and the Gulf Coast — is another focus of opposition to Canadian oil. Nearly 600,000 bpd of oil can already flow from Alberta to Illinois and Oklahoma through the existing Keystone Pipeline; if built, Keystone XL would double the amount transported to U.S. refineries — and would bring it all the way to the Gulf of Mexico.

Detractors warn of the environmental consequences if a spill were to occur along the route through Nebraska’s Sandhills wetlands region and the Ogallala Aquifer. These concerns were a top reason why the U.S. Department of State said on Jan. 18 that it “could not make a national interest determination regarding the permit application without additional information.” With that, Obama rejected the pipeline as proposed.

The problem is that politics overtook on-the-ground considerations. In November, the Nebraska Legislature passed a bill that would move the XL pipeline’s path out of the Sandhills and the Ogalla Aquifer, and TransCanada — the Canadian company that would construct the pipeline — agreed to shift the route. But Congress, rather than wait for TransCanada to submit a new application and for the U.S. government to complete a new environmental impact study, inserted a 60-day timeline into the payroll tax extension bill in December to compel Obama to make a final determination on the pipeline.

This will not be the last we hear of Keystone XL in this election year. The proposed pipeline and the jobs it will create are now campaign fodder for Republicans eyeing an opportunity to claim that the president is failing to support job creation. But instead of playing politics with pipeline construction, Congress should allow TransCanada to reapply for approval, as Obama has offered, after it finalizes a new plan that avoids the Sandhills. The political hijacking of a plan to further integrate North American oil does not serve the interests of the United States, especially with continued uncertainty in the Middle East.

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Sen. David Vitter, R-La., along with fellow Republican Sens. John Hoeven of North Dakota and Richard Lugar of Indiana, is planning to introduce legislation next week asserting congressional rights to approve the Keystone XL Pipeline proposed between Canada and Gulf Coast refineries. President Barack Obama has rejected the pipeline, saying he would reconsider his decision once environmental studies are done for a revised pipeline route in Nebraska.

The bill, being introduced with 44 sponsors including one Democrat, asserts that Congress can approve the pipeline through its authority under the Commerce Clause of the U.S. Constitution.

It will be tough to get the bill through the Democratic-controlled Senate, and ultimately signed into law by the president, though GOP leaders are seeking ways to add it to “must pass” legislation. Republicans point to the benefits of getting more oil to the United States from a neighboring U.S. ally. But Obama, backed by environmental groups, said the safety of the pipeline project can’t be determined until a specific route for the pipeline in Nebraska is developed and evaluated.

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Worldwide crude oil consumption will increase by 1.3 million b/d this year and by 1.5 million b/d in 2013, with the higher demand met by increased production both from the Organization of Petroleum Exporting Countries and from non-OPEC producers, the US Energy Information Administration said in its latest Short-Term Energy Outlook.

Absent a significant oil-supply disruption, EIA expects the recent tightening of world oil markets to moderate in 2012 and to resume in 2013.

US oil consumption is forecast to average 18.96 million b/d this year and 19.01 million b/d in 2013 vs. 18.87 million b/d in 2011.

Total oil demand in countries of the Organization for Economic Cooperation and Development is forecast to decline this year to 45.56 million b/d following last year’s 420,000 b/d decline to 45.68 million b/d, as a decline in European demand outweighs modest demand growth in North America. OECD demand for 2013 is forecast to average 45.73 million b/d.

Non-OECD countries will account for most of the world’s oil demand growth over the forecast period with the largest gains in China, the Middle East, and Brazil. EIA forecasts non-OECD oil consumption will climb by 1.4 million b/d this year to average 43.82 million b/d and by another 1.3 million b/d in 2013. This compares to demand growth of 1.5 million b/d in 2011 by EIA estimates.

Oil supply outlook

Including crude oil and liquid fuels production, oil supply from non-OPEC countries will increase by 910,000 b/d in 2012 and by 760,000 b/d in 2013, led by output in North America due to continuing production growth from US onshore shale formations and Canadian oil sands.

EIA forecasts that US crude oil production will average 5.74 million b/d this year, increasing by 170,000 b/d from 2011, and will climb by a further 80,000 b/d in 2013. Continued increases in Lower 48 onshore production of 270,000 b/d this year and 110,000 b/d in 2013 will overshadow declines of about 30,000 b/d in Alaskan output each year as well as a decline of 80,000 b/d in Gulf of Mexico production in 2012.

The US will continue to be a net product exporter through the forecast horizon, EIA said, with net product exports averaging 310,000 b/d in 2012 and 290,000 b/d in 2013. For the first time since 1949, the US last year was a net exporter of refined petroleum products, with gross product exports averaging 380,000 b/d more than gross product imports.

EIA expects that the market will rely on both inventories and increases in production of crude oil and noncrude liquids in OPEC member countries to meet global demand growth. OPEC crude oil production will increase by about 90,000 b/d in 2012 to average 29.96 million b/d and by 590,000 b/d in 2013, according to the outlook.

OPEC noncrude petroleum liquids, which are not subject to production targets, increase by 410,000 b/d in 2012 to average 6.32 million b/d and by another 250,000 b/d in 2013.

EIA forecasts that OPEC surplus production capacity will increase to 3.7 million b/d at the end of 2013 from about 2.3 million b/d at yearend 2011 in part due to the assumed recovery of Libyan production to predisruption levels.

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DOHA, Qatar (CNNMoney) — Just three years after fears of an energy supply shortage, executives of the world’s leading oil companies now foresee a bonanza of oil and natural gas on the horizon.

In 2008, concern that a rapidly developing world was eating through all its energy supplies helped push prices to record levels, with oil hitting $147 a barrel and natural gas topping $15 per million cubic feet.

Now, those concerns have abated, reflected in $100 oil and $3-$4 natural gas. That’s partly due to the global recession, but largely thanks to new technology that’s unlocked vast new supplies of oil and, especially, natural gas. (Read: Gasoline: The new big U.S. export.)

“The world holds centuries of natural gas supply, enough for generations,” said James Mulva, chief executive of ConocoPhillips (COP, Fortune 500), at the World Petroleum Congress on Tuesday. “We don’t need any new miracles, the miracles have already occurred.”

Those “miracles” include the relatively new ability to liquefy natural gas so it can be sent around the world on massive ships. Previously, natural gas had to be transported by pipeline, which made it hard to get it from places where it’s abundant, such as here in Qatar, to consuming markets in Asia and elsewhere.

The miracles also include the ability to tap oil and natural gas from shale rock, which is done using a combination of new horizontal drilling technology and a process called hydraulic fracturing. Known as fracking for short, it involves injecting vast amounts of water, sand and some chemicals deep into the earth to crack the shale rock and allow the gas or oil to flow out.

The technology has indeed freed huge amounts of gas — which is why natural gas prices in the United States, where the process was pioneered and is now fairly widespread, are about a fifth of what they were in 2008.

But fracking has also raised concerns about ground water contamination and earthquakes, and has been banned in several spots around the world.

Little mention was made of the fracking controversy at this oil conference. But Royal Dutch Shell  Chief Executive Peter Voser said it’s better that the big companies have gotten in on the shale gas boom — suggesting they have the money and technical ability to make sure it is done right.

“Companies like Shell and Exxon coming into shale gas operations in a big way will drive the standards higher,” said Voser, who also said that Shell has recently begun tapping shale gas in China. “This is where the bigger players can drive the sustainability of these reserves.”

The bonanza doesn’t come cheap. While natural gas prices have moved considerably lower and oil prices are down by about a quarter since the heady days of 2008, it’s unclear how they will react when the global economy picks up.

As Exxon Mobil Chief Executive Rex Tillerson noted, demand for energy is expected to jump some 30% over the next two decades as the global economy doubles in size. Most of that energy will continue to come from fossil fuels, forecasting agencies predict, and they expect tighter supplies and higher prices.

These new energy sources are more expensive than traditional wells, whether it’s tapping shale rock, liquefying natural gas or exploring for oil in ultra deep water. And it will require a massive investment to bring this new energy to market.

Tillerson said his company spends $34 billion a year investing in new energy projects. Worldwide, he said the industry spends $1.5 trillion per year on new infrastructure. That’s nearly half the spending of the entire U.S. government in 2011.

Tillerson said the spending is worth it and that rising energy demand, especially in the developing world, is not a bad thing. Energy allows water to be purified, farms to be fertilized, and hospitals and schools to operate.

“There is a moral imperative behind humanity’s need for energy,” he said. “The delivery of energy will provide a bridge to a better future.”

Few would disagree — although many are hoping that energy will come someday in a cleaner form than fossil fuel.

Original Article