(Reuters) -- A boom in shale oil production will raise U.S. domestic crude output by a fifth over the next decade, helping to slash the country's dependence on foreign oil imports, the U.S. Energy Information Administration said Monday.

Growing shale production as well as Gulf of Mexico development will boost U.S. crude oil production by more than 20 percent to 6.7 million barrels per day in 2020 from 5.5 million bpd in 2010, the EIA said in its annual domestic energy outlook.

That would mark the highest level of U.S. oil output since 1994, thanks to advances in drilling techniques that have opened the door to tapping the nation's vast shale reserves.

The EIA's forecast for U.S. oil production is 11 percent higher than its previous estimate.

Shale oil production made up 21 percent of output in the lower 48 states in 2010. By 2035, such production will account for 31 percent of that output.

While oil production is expected to slow after 2020, output will remain above 6.1 million bpd through 2035, the EIA said.

IMPORTS TAKE PLUNGE

U.S. oil imports are expected to drop to 36 percent of total consumption by 2035 from 49 percent in 2010 as production rises while demand is limited by modest economic growth plus higher vehicle efficiency standards, according to the EIA report.

The big loser will likely be West Africa, who will find their light sweet barrels they export to the U.S. replaced by shale, said Sarah Emerson of Energy Security Analysis, Inc.

Emerson said Latin American oil suppliers have more long-term contracts and connections to U.S. refineries that are suited to handle their heavier crude oil.

Eventually even Persian Gulf crude could take a hit, but it'll take a while - at least 5 years, she said.

The EIA did not factor in the newest proposed efficiency standards for vehicles from 2017 to 2025, which the agency said could reduce demand for oil imports even further.

The surge in shale oil production will not be affected much by the Obama administration's decision to reject TransCanada's Keystone XL pipeline, EIA head Howard Gruenspecht said.

Oil drillers had looked to the project, who's future is now uncertain, to help move oil produced from shale resources.

Given the prices projected in the report, we don't think that production is dependent any particular pipeline, Gruenspecht said at an event unveiling the report.

SHIFT TO OIL

The search for higher-value energy resources has prompted companies such as Chesapeake (CHK.N) and Halliburton (HAL.N) to shift drilling from dry gas fields to those that are liquids-rich, meaning they contain oil or natural gas liquids such as propane, butane or ethane, whose prices are based on those of crude oil.

Matt Smith, an analyst with Summit Energy, said Chesapeake's announcement on Monday that it will cut its daily natural gas output should not significantly affect production going forward.

Although this is obviously an indication that low prices are going hamper production somewhat, we are still seeing near record production, Smith said. Especially once the reality of LNG comes into focus, it seems this really shouldn't impact production over the longer term.

The EIA said it expects the United States will produce 7 percent more natural gas between 2010 and 2035 than previously projected.

Despite significantly lowering its estimate for U.S. shale gas reserves, U.S. natural gas output is projected to hit 27.9 tcf in 2035, up from 21.65 tcf in 2010.

The EIA's estimate for unproved technically recoverable shale gas in the United States is now 482 trillion cubic feet, down from the 827 tcf estimated in last year's report.

Strong natural gas output will fuel exports of liquefied natural gas, with the United States becoming a net exporter of LNG in 2016 at a capacity of 1.1 billion cubic feet, the EIA said. LNG export capacity is expected to rise by an additional 1.1 bcf in 2019.

(Additional reporting by David Sheppard; Editing by Jim Marshall, Alden Bentley and David Gregorio)

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