U.S. crude markets are evolving in ways thought impossible a decade ago and highly unlikely just a few years ago.

The use of hydraulic fracturing and horizontal drilling, which revolutionized the natural-gas sector by enabling commercial production of shale gas, is now making its mark on U.S. oil output.

Rising shale-oil production is offering U.S. Gulf Coast and Midcontinent refiners access to more domestic supplies of light, sweet crude. That output is displacing imports of light, sweet grades from across the Atlantic and depressing the price of domestic marker grades West Texas Intermediate and Louisiana Light Sweet relative to North Sea benchmarks.

More specifically, U.S. crude production is at a 14-year high of 6.39 million barrels per day (b/d), and with Canadian domestic imports at record levels, U.S. refiners purchased 594,000 b/d less trans-Atlantic crudes from November 2011 to November 2012, according to Rodrigo Favela, executive director for refining, planning and evaluation at Hart Energy.

At the same time, U.S. refiners continue to enjoy cost advantages over their global counterparts to the extent that U.S. refined-product exports – and eventually, crude-oil exports – will grow significantly, he said.

Speaking at a Hart Energy breakfast event on February 7, Favela said global refined-product demand is expected to grow 33% in the next two decades – driven by growing need in developing countries – and transportation fuels like diesel and gasoline will represent nearly 60% of that total.

The Asia-Pacific region will overwhelmingly dominate global oil-demand growth. Strong demand growth will be seen throughout the region – driven largely by China and India – while Japan will experience a decline, Favela said.

“Unconventional gas and crude will foster U.S. refineries competitiveness in the Atlantic Basin – affecting the European refining industry and possibly some Latin American refining projects – and new opportunities will arise for petrochemicals based on condensates for the region,” he said. “U.S. refiners will see between a $2-per-barrel (/bbl) and $3/bbl advantage over other regions.”

Offering similar predictions, Roland Moreau, manager of safety, security, health and environment for ExxonMobil Corp.’s upstream research division, said between now and 2040, total energy consumption will also be driven by developing countries.

Citing ExxonMobil’s Outlook for Energy – released in December 2012 – Moreau told breakfast attendees that world energy demand will require 85% more electricity by 2040 than it used in 2010, with increasing reliance on natural gas and nuclear power.

“Good news for everyone in the room,” he said. “Oil and gas and coal aren’t going away.”

Under the current trajectory, ExxonMobil expects North America to become a net exporter of energy by 2025, with natural gas leading the way and the continent producing more oil than it uses by 2030. Some of that energy would come from Canada, including bitumen harvested from the oil sands around Alberta, Moreau said.

ExxonMobil’s export prediction dovetails with similar forecasts by the International Energy Administration, the U.S. Energy Information Administration and other organizations.

“The Outlook forecast provides a window to the future, a view that we use to help guide our own strategies and investments. Over the next five years, ExxonMobil expects to invest about $185 billion in energy projects,” he said. “Given the magnitude of our investments, it’s critical that we take an objective and data-driven approach to ensure that we have the most accurate picture of energy trends.”

Looking to the future, energy sources currently considered “unconventional” are rapidly becoming conventional, thanks to the technologies available to produce them, giving

them an increasingly significant role in the global energy mix, Moreau said.

“Oil will remain the largest single source of energy to 2040, growing around 25%,” he added. “But the most significant shift in the energy mix occurs as natural gas displaces coal as the second-largest fuel by 2025. Gas will grow faster than any other major fuel source, with demand up 65% by 2040.”

Although gasoline demand will continue to erode in the U.S. and Europe, demand for diesel is expected to rise slightly in the U.S. – and significantly in Latin America, according to Favela.

Brazil and Mexico currently account for 60% of the total petroleum-fuels demand in Latin America.

“We expect to see declining gasoline demand in the U.S. and Europe because of transportation efficiency standards, ethanol growth and the dieselization of vehicle fleets,” he said.

In Brazil, Petróleo Brasileiro S.A. (Petrobras) dominates in refinery-capacity expansions, with plans to add nearly 3.2 million b/d of crude capacity by 2020. But the shifting crude-oil landscape in North America could change all that, he said.

“There already have been a number of projects that were delayed, and we expect further delays,” Favela said. “The jury is still out on where they will end up. The problem with these projects is that they will far exceed the needs of the region.”

Petrobras refinery-expansion projects include the 230,000-b/d, diesel-oriented Abreu e Lima refinery, which is due for start-up between 2015 to 2016; and the “phase-1,” 165,000-b/d expansion of the Comperj refinery – likely to ramp up as early as 2015. The second phase of the Comperj expansion is still in the planning stages, however, Favela noted.

“Strong growth will also be seen in the Middle East and Asia Pacific,” he said. “Larger countries will achieve nationwide ultra-low sulfur fuels quality by 2016. Aggressive capacity expansion will be required to keep pace with demand and lower-quality indigenous crude. The Middle East will emerge as the marginal producer of diesel.

Although coal is a big part of the electricity mix currently – and will remain a major power source in developing countries for years to come – utilities will increasingly turn to other options as climate change policies spur a transition to nuclear power, natural gas and renewable sources that don’t emit as many greenhouse gases (GHGs).

All told, coal use will drop 33% by 2025 over 2010 demand, according to the ExxonMobil Outlook.

“Coal is very much pushed back by environmental considerations,” Moreau said. “Nuclear is limited by public acceptance. Wind and solar are limited both by costs and the practicalities of growing (them). “This provides a tremendous opening for natural gas a source of generating electric power.”

In the U.S. the new abundance of shale oil and natural gas has already shifted the economics of natural gas, blunting coal’s price advantage. That dynamic will change even more, ExxonMobil said, as GHG regulations create an implied cost on the carbon-dioxide emissions produced by burning fossil fuels of up to US$80 per ton in 2040, according to Moreau.