Energize Weekly, March 14, 2018
The United States, thanks to surging shale-oil production, will “dominate oil supply growth” over the next five years and is becoming “ever more dominant in the global oil market,” according to the International Energy Agency (IEA).
The key exporting countries meeting demand growth along with the U.S. will be Brazil, Canada and Norway. The four “can keep the world well supplied, more than meeting global oil demand growth through 2020,” IEA said in its annual report on oil markets.
Since a ban on exporting crude oil was lifted in 2015, U.S. exports have increased sharply reaching as much as 2 million barrels a day in some weeks, the report said.
Output from OPEC producers will grow at a much slower pace, with expected declines in Venezuelan production offsetting increases in Iraq. OPEC will still provide the major share of the world’s supply.
While last year’s oil price rally unleased a “new wave of growth” in the U.S., the IEA said that overall investments were flat in 2017, and there may be only a modest increase in 2018. This comes after a historic investment drop of 25 percent in both 2015 and 2016.
“This is potentially storing up trouble for the future,” the agency said. More investment will be needed to boost production to meet demand after 2020.
Another potential problem is that investments that have been made were focused on the light tight oil (LTO) sector in the U.S. “As a result, upstream investment may be inadequate to avoid a significant squeezing of the global spare capacity cushion by 2023, even as costs have fallen and project efficiency has improved,” the report said.
Led by the LTO, or the so-called shale plays, U.S. is set to grow by 3.7 million barrels a day, more than half of the total global production capacity growth of 6.4 million barrels a day expected by 2023.
Total U.S. liquids are expected to reach nearly 17 million barrels a day by 2023, making the country the top global producer and nearly matching the level of its domestic products demand.
The EIA said that U.S. production could be even higher by 2023 if prices rise above those used in making the forecast.
“The United States is also making its mark in the refining industry,” the analysis said. “Conventional wisdom has it that rapidly rising LTO production is incompatible with the need of refiners to process heavier, sourer crudes, given earlier investments. This will not, in fact, be the case. With Asian import requirements growing there will be opportunities for new suppliers.”
The IEA is projecting the completion of serval pipelines and said that as Canadian shipments to the U.S. grow, lighter U.S. crude will be freed up for export—particularly to meet Asian demand for petrochemical feedstocks. Shipments of oil from the United States to China are already significant, the outlook said.
“The U.S. shale sector responded quickly to rising prices both in 2010 and in 2017 and it will continue to adjust to price signals in the future,” the IEA said. “But there will still be a continued reliance on OPEC countries for a major share of global supply. Within OPEC, more than 2 million barrels a day of spare capacity is held in Saudi Arabia. In turn, this emphasizes the crucial role OPEC’s largest producer continues to play in providing stability to global oil markets.”
