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Veteran oil and gas analyst Henry Groppe says we're on the brink of a seismic shift in the global energy market – but not, as many people believe, from the boom in U.S. shale oil production. No, if you're looking for a game-changer, you're going to need a bigger map. One that extends all the way to Iraq.

"The emergence of Iraq as an oil power of the nature of Saudi Arabia is the big thing in the future of the oil business," the 87-year-old Texan said in an interview Wednesday during a visit with Middlefield Capital Corp., the Toronto-based fund management firm where he has been a long-time adviser. "It dwarfs everything else. It's the thing that everybody ought to be watching and following as closely as possible."

"We're focusing on the wrong question," he said.

And that wrong question is U.S. shale – touted often, and loudly, as a fuel source that will return the United States to energy independence and redraw the global oil map. The production explosion in shale has rapidly boosted total U.S. crude production by about three million barrels a day (b/d), returning it to heights not seen in a generation.

It's also nearly done, Mr. Groppe said.

By his firm's analysis, most of shale oil's boom is behind it; production has maybe another one million b/d to go before it peaks. After aggressive drilling expansion in the past couple of years, shale plays are simply running out of places to drill holes (not to mention available drill rigs to keep increasing the drilling activity). In addition, shale oil wells are notorious for their high depletion rates – meaning initial high production levels typically decline rapidly.

Add it all up, and you get not only a limited upside to shale production, but a slower pace of growth from here. He figures shale oil output is likely to grow only a modest 100,000 to 150,000 b/d over the next six to eight years, before turning downward.

To put it in perspective, he said, the three-million-b/d bonanza that shale has delivered to the U.S. oil market essentially only replaces the roughly three million b/d the world has lost to geopolitics-related supply disruptions in Africa and the Middle East. And the prospects for future shale oil growth is a drop in the bucket compared with the potential in Iraq.

Since the U.S. invasion and regime change in that country reopened its oil industry to the world, exploration work has pointed to a resource much bigger than many experts had previously thought. Mr. Groppe said it's now believed Iraq could become a producer on a Saudi scale – eight to nine million b/d by the end of this decade, as much as triple the country's current output.

Just how big Iraq becomes will depend on how much and how quickly some of the world's other big producers – particularly its OPEC partners Iran and Saudi Arabia, as well as the influential Russians – are willing to let it grow. Given that a 100,000 b/d change in supplies roughly equates to $1 (U.S.) a barrel in oil prices, Mr. Groppe said, these big producers will likely resist Iraq's growth, which would eat into the profits that are so critical to their economies. Still, he predicted, in a few years we'll probably have Iraq with an OPEC production quota of about three million b/d more than its current output levels. At the same time, slowing growth from shale production will make U.S. shale oil a non-story for the global industry.

Of course, he acknowledged, "That's not everyone's belief." Indeed, this is just the latest instance in Mr. Groppe's long and storied career in which he's been out of step with conventional wisdom.

Often, he's made unpopular market calls that proved right. In 1980, when crude approached $40 a barrel for the first time and many forecasters were predicting $100 was on the way, Mr. Groppe said oil would fall below $15 by the mid-1980s. It did. In 1998, when oil dipped to the $10 range and experts were hailing a new era of cheap energy, Mr. Groppe predicted prices would soon soar. Within two years, they had tripled.

Yet Mr. Groppe's other bearish call on shale fuel – four years ago he was predicting an imminent demise of the shale-gas boom (for similar reasons as his shale oil call) that would sent natural gas prices soaring to $8 per million British thermal units within months – has proved, at very least, ill-timed. Only recently has shale gas output begun to slow and prices begun to recover.

Mr. Groppe steadfastly insists he was (and is) right on that call. It was the shale-gas producers who were wrong. They kept expanding production, he said, "with almost a complete disregard to economics."

He said that despite low gas prices that should have made the relatively expensive shale-gas production unattractive, the rush to lock up land leases, helped by low interest rates and eager investors who maintained ample funds available to producers, kept the shale gas frenzy going for far longer than the underlying economics would justify. Once the industry woke up to the economic realities, tens of billions of dollars had been poured into the ground, much of it at a loss.

"The capital destruction was unprecedented," he said. "We don't know how to forecast uneconomic investment on a huge scale."