The U.S. shale boom will send “shock waves” through the global oil trade over the next five years, benefiting the nation’s refiners and displacing OPEC as the driver of supply growth, the International Energy Agency said Tuesday.
North America is projected to provide 40 percent of new supplies through 2018 with the development of light, tight oil (such as shale oil) and oil sands, while the contribution from the Organization of Petroleum Exporting Countries of new supplies will slip to 30 percent, according to the energy agency’s medium-term market report.
In its report, the agency trimmed global fuel demand estimates for the next four years and predicted that consumption in emerging economies may overtake developed nations this year.
“The supply shock created by a surge in North American oil production will be as transformative to the market over the next five years as was the rise of Chinese demand over the last 15,” the Paris-based adviser to 28 oil-consuming nations said.
The development of U.S.shale resources, enabling the nation’s highest level of energy independence in two decades, is creating a “chain reaction” in the global transportation, processing and storage of oil that may escalate as other countries try to replicate the American oil boom, according to the agency. Crude futures for settlement in 2018 are trading at a discount to current prices, signaling expectations for increasing supplies and constrained demand.
Brent crude for settlement in 2017 is about $12 a barrel cheaper than front-month prices on the ICE Futures Europe exchange. June contracts were near $102.60 Tuesday, while futures for December 2017 were at $90.39 a barrel.
The agency predicted that global oil demand will increase by 6.1 million barrels a day, or 6.7 percent, to 96.7 million a day by 2018. Demand estimates for 2017 are about 95,000 barrels a day less than forecast in the agency’s previous report, as weaker-than-expected growth this year crimps subsequent annual totals.
Most of the new production will come from outside OPEC, according to the agency, which last year had predicted that supply growth would be spread equally between the two blocs. Non-OPEC producers will bolster combined output over six years by 6 million barrels a day to 59.3 million a day to 2018 while OPEC crude capacity will rise by 1.75 million a day, the agency forecast.
“The U.S. production comes as a godsend solution for a market where emerging market demand is continuing to increase, while supply in the Middle East and North Africa won’t increase that much,” Bjarne Schieldrop, chief commodity analyst at SEB AB in Oslo, said Tuesday.
North American production is expected to increase by 3.9 million barrels a day from 2012 to 2018, making up more than half of the non-OPEC gain. Access to these supplies has rescued many U.S. refineries from closure and will secure their place as exporters of gasoline and naphtha, while hurting other operators that aren’t configured to process the new lower-sulfur, low-density crude, the agency said.
“Tight oils are a very important source of current supplies and will be for the foreseeable future, but one shouldn’t get carried away,” said Amrita Sen, chief oil market analyst at Energy Aspects Ltd. in London. “If we get a few years of oversupply, prices fall, and we will see tight oils output fall.”
OPEC will bolster crude capacity to 36.75 million barrels a day in 2018 as Iraq, the United Arab Emirates and Angola are expected to increase output, the agency said. The total is 750,000 a day less than had been predicted for the period of 2011 to 2017 in the agency’s previous report, as militant attacks and political violence delayed projects in Algeria, Libya and Nigeria.
“Increased violence by Islamist extremists and militants, combined with political instability across much of north and west Africa since the start of the Arab Spring in 2011, is changing the equation for acceptable risks for international oil companies,” the agency said.
Demand for OPEC’s crude is expected to reach 30.4 million barrels a day by 2018, an increase of less than 1 percent from last year’s call-on-OPEC of 30.12 million a day, according to the report.
OPEC’s 12 members are currently producing more than this level, pumping 30.7 million barrels a day in April, the agency said in a separate monthly market report.
Oil use in emerging nations may surpass consumption in the Organization for Economic Cooperation and Development as early as this quarter, and is forecast to expand by 1.4 million barrels a day, or 3 percent, a year to 2018, according to the energy agency report. In contrast, demand in the Organization for Economic Cooperation and Development will contract by 250,000 a barrels a day, or 0.6 percent, a year in the period.
Demand growth in China, while still the biggest driver of the global expansion after increasing “exponentially” in the past decade, will “shift to a lower gear,” as the country targets a more stable pace of economic development, the energy agency said. China is projected to consume about 12 million barrels a day in 2018, making it the second-largest oil user after the U.S.
The energy agency increased its forecast for global oil demand in 2013 in the monthly report for the first time since January, after revisions to estimates of German gas and oil consumption.
The agency raised the 2013 estimate by a “marginal” 65,000 barrels a day, predicting that world oil use will climb this year by 800,000 barrels a day, or 0.9 percent, to 90.6 million a day.
Business, Pages 19 on 05/15/2013